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Regulators Crack Down on "Exotic" Mortgages
Maret Watch ^ | 9/29/2006 | Rex Nutting & Robert Schroeder,

Posted on 09/30/2006 9:03:57 AM PDT by ex-Texan

Lenders must consider borrowers' ability to pay the full cost of the loan

WASHINGTON (MarketWatch) -- Cracking down on exotic mortgages that have exploded in popularity in recent years, U.S. regulators told banks Friday that they've got to make sure that borrowers can actually pay back the full amount of the mortgage.

Exotic products, such as interest-only or payment option adjustable rate mortgages, allow borrowers to trade lower initial payments for higher payments later. But such products have raised red flags at the Federal Reserve and other banking regulators as more institutions offer them and they become available to a wider variety of potential borrowers.

"The agencies are concerned that some borrowers may not fully understand the risks of these products," the five banking regulators said in a statement Friday. And they reminded lenders about truth in lending laws on the books that prohibit unfair and deceptive lending practices, including misleading advertising and promotional materials. Read the government's complete guidance. In particular, banks were told not to offer loans that would require the borrower to sell the home or to refinance the loan in order to make the full payment. Such "collateral-dependent" loans are typically prohibited as unfair or deceptive.

(Excerpt) Read more at marketwatch.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; Government
KEYWORDS: boring; brokenrecord; bubblebrigade; bubbles; depression; despair; doom; dustbowl; eeyore; governmentregulation; housing; joebtfsplk; mortgages; onenotesuzy; realestate; toolittletoolate
I urge everybody to click the primary link and read the full report. This is going to create some big downward pressure on housing along with lenders. Mish's Global Economic Trend Analysis. Mish was a guest on Coast2Coast earlier this week. About 15 million people listened to the broadcast. If you want to know what he was saying, visit his web site.

Also, New lending guidelines have been introduced. Most new loans in the pipeline are now going to be rejected along with most refinancing applications. Hundreds of thousands of people are going to be very upset.The government has a way of making things worse after the fact.

Federal Reserve Guidelines Pdf File

For all those realtor/ mortgage broker naysayers out there: Just wait until next year. 2008 will be an even more challenging year that 2007. Check my FR page or here if you want to learn more.

1 posted on 09/30/2006 9:03:57 AM PDT by ex-Texan
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To: djf; GodGunsGuts; Hydroshock; Calpernia; M. Espinola

*Ping*!


2 posted on 09/30/2006 9:09:43 AM PDT by ex-Texan (Matthew 7: 1 - 6)
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To: GodGunsGuts
"Nothing to see here. Lock your windows. Time to move on."

Lenders Gone Wild

3 posted on 09/30/2006 9:17:17 AM PDT by ex-Texan (Matthew 7: 1 - 6)
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To: ex-Texan

This warning basically amounts to the scat hitting the fan. As I have said, the lenders are in a completely untenable position. If liquidity dries up, prices go down. If prices go down, they lose their arses. In order to keep it going, they HAVE to keep lending.

I'm covered. I should make some popcorn and kick back!


4 posted on 09/30/2006 9:22:39 AM PDT by djf (Its time for all patriotic Americans to get a new pet --- a pet PIG!!)
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To: ex-Texan

Mortgages can be exotic? How bout just regular or 50/50. Guess it depends on the servicer.


5 posted on 09/30/2006 9:33:03 AM PDT by showme_the_Glory (No more rhyming, and I mean it! ..Anybody want a peanut.....)
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To: djf

The large national lenders must follow the new federal guidelines. Independent lenders can continue to issue mortgages. These are the same people who rip off the public by means of unregulated mortgage brokers. Ameriquest Mortgage was forced to close all its local offices. They paid about $ 335 million to settle a major class action lawsuit filed by the attorney generals of many states. But the company may still own several subsidiary mortgage companies. One of their subsidiary companies was writing a boat load of sub-prime business in Oregon. A lot of "stated income" applications might have been written.


6 posted on 09/30/2006 9:39:46 AM PDT by ex-Texan (Matthew 7: 1 - 6)
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To: ex-Texan
The regulators also urged lenders to reduce the number of loans they offer to borrowers who do not fully document their assets and income. Such "low-doc" or "no-doc" loans can significantly increase the risks of default, they said.

Yes, but my guess is that this will also make it more difficult for small business owners to get mortgage loans.

7 posted on 09/30/2006 9:45:41 AM PDT by snowsislander
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To: ex-Texan

Ya know--the problem with the Constitution is that the writers thought they were speaking for a people who had an ounce of sense. People who bought into these mortgages (and got credit cards with horrible rates) are now demanding that the government protect them. People who had an ounce of sense would not get into these situations and would have put business who offer stupid products out of business a long time ago.


8 posted on 09/30/2006 9:50:08 AM PDT by freeangel ( (free speech is only good until someone else doesn't like what you say))
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To: ex-Texan
That's the popular ARMs. People were given loans on houses they can't afford. The Feds act as if we actually own property free and clear in this country. No we don't - we rent it. Either we rent from the lender when we pay the mortgage on a home or we pay rent to the government in the form of property taxes once its paid off. Nothing in life is free. Whether its a home or an apartment. At least with an apartment, your name is never recorded as the formal owner of record.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

9 posted on 09/30/2006 9:56:06 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
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To: freeangel
Housing is the most heavily regulated business in the country. There's virtually no competition. How else to explain six figure prices? In any true free market, a home would be priced comparable to a car and homes would be priced according to one's means of paying for them. Let's face it: if you can't afford a half million dollar home, common sense should tell us we can't afford that million dollar mansion either. But we are told we can enjoy it now, pay later. What they mean is, when we die, they recoup the loss with a quick sale of the home.

"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

10 posted on 09/30/2006 10:01:45 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives On In My Heart Forever)
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To: goldstategop
"Either we rent from the lender when we pay the mortgage on a home or we pay rent to the government in the form of property taxes once its paid off. Nothing in life is free . . . "

Bravo! Standing ovation! Kudos! I learned that truth over twenty years ago. Back when I owned rental properties in four states. Please tell those naysayers that they are totally ignorant and self-deluded. You know the two I mean. The most obnoxious ones, that seem to live only to stalk me on FR.

11 posted on 09/30/2006 10:15:07 AM PDT by ex-Texan (Matthew 7: 1 - 6)
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To: djf

These lenders have been investing in what amounts to a vast pyramid scheme. As long as the housing market goes up, the risk is minimal, but when a borrower can't sell their house for what they are paying for it, and have no equity (interest-only loan) then disaster awaits.

In the long run if this pyramid scheme collapses the taxpayer will foot the bill, just like always.


12 posted on 09/30/2006 10:30:02 AM PDT by zipper
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To: goldstategop
...when we die, they recoup the loss with a quick sale of the home.

Assuming the home has more value than it did at the time of the sale, or there's collateral sufficient to cover the loss in value--with these loans there is little to no buildup of equity.

13 posted on 09/30/2006 10:32:14 AM PDT by zipper
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To: freeangel
Ya know--the problem with the Constitution is that the writers thought they were speaking for a people who had an ounce of sense.



You may be on to something here.
14 posted on 09/30/2006 10:34:26 AM PDT by grjr21
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To: ex-Texan

I am so tired of the government continuing to try to protect people from themselves, thereby denying the flexibility that actually helps a lot of people.


15 posted on 09/30/2006 10:36:49 AM PDT by FairOpinion (Dem Foreign Policy: SURRENDER to our enemies. Real conservatives don't help Dems get elected.)
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To: freeangel

"People" aren't demanding that the government protect them.

The GOVERNMENT decided that THEY should be "protecting" people from themselves, even if it means denying their free choice.


16 posted on 09/30/2006 10:39:15 AM PDT by FairOpinion (Dem Foreign Policy: SURRENDER to our enemies. Real conservatives don't help Dems get elected.)
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To: ex-Texan
For all those realtor/ mortgage broker naysayers out there: Just wait until next year. 2008 will be an even more challenging year that 2007.

I am surprised that the "Everything is Rosey..., Stop Bashing Bush" posters didn't come out of the woodwork! We have a number of "Economic Cheerleader" posters on FR. Anyone daring to recognize economic cycles go down as well as up invariably are attacked!

I have relatives and friends who are in construction & real estate. Those who have been around these industries for 30-40 years are wise enough to trim their economic sails. Most of the economic cheerleaders have not really known economic downturns and are self-deluded believers that "It's Different This Time"!

17 posted on 10/01/2006 5:03:58 AM PDT by ExSES (the "bottom-line")
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