Will Congress come to the rescue of consumers to initiate home loan lender reform? Can. The Democratic-led Congress may introduce legislation to implement strict measures to curb abuses within the mortgage industry.
The mortgage industry includes not only mortgage lenders, mortgage brokers, but also homebuilders who own mortgage companies, Wall Street, and other mortgage security investors. If Congress implements strict measures, it will protect future consumers from being exploited. However, it can have a side effect in that it can protect buyers of mortgage-backed securities. The recent past has seen absolute chaos in the market. Countrywide Financial’s second-quarter earnings fell, leading to a drop in share prices to a 52-week low on July 24, 2007. Its second-quarter net income fell to $485.1 million from $ 722.2 million, a year ago with revenue down 15% to $2.55 billion. .
This week, American Home Mortgage, a large national mortgage lender, announced that it may be unable to finance its current inventory of home loans exceeding $300 million, causing its share value to plummet by a 90% But the subprime disaster is hitting even prime lenders and borrowers.
Wall Street is also reeling from rising foreclosures, housing gluts, subprime mortgages, payment defaults and more. However, Wall Street is complicit along with home builders and mortgage lenders in creating this problem.
Beazer Homes, one of many homebuilders that started or grew its home loan business to make it easier to buy their homes. Now, however, allegations are emerging from former homeowners who have defaulted on their mortgages that some builders inflated their income or altered material facts on mortgage applications to get them approved. In order to sell homes, many financially unqualified people were approved for mortgages and other home loans, such as mortgage refinancing.
The housing market boom of the last five years was due to many different factors. Banks, mortgage companies and home builders relaxed their credit standards and flooded the market with mortgage loans, along with loans to people with questionable credit. Unlike before, adjustable-rate mortgages were bound to increase your bottom line. The people on Wall Street encouraged this reckless home loan behavior by continuing to buy huge amounts of home loans to convert into securities. Many of these mortgage-backed securities contained risky subprime mortgages.
Now that the housing bubble has burst, rising foreclosure rates, an oversupply of homes, rising mortgage rates, lower demand for home purchases, and negative residual effects on the economy are leading to the government take a closer look at the role of mortgage lenders, home builders, and Wall Street.
Congress wants to rein in Wild West lending tactics by imposing strict lending guidelines. But that may not be necessary if the Federal Reserve recommends new consumer protection rules this year. Therefore, Congress may not need to act if the Federal Reserve restricts deceptive lending practices among all lenders. It is to be expected that the national lending rules will have to supersede the various state rules because the mortgage investment market is national.