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Why can't changes be made to curb irresponsible lending?New York Stock Exchange Today's Topic: Rein in risky mortgages? A shock wave hit the housing market, and the U.S. market at large, after delinquencies on risky home mortgages hit a new high, a major subprime mortgage lender was delisted by the New York Stock Exchange, and the Dow fell 416 points one day recently.
Friday, 03/23/07 rctimes.com The response so far? A wag of the finger. Economists and other market observers have long warned that subprime mortgages — home subprime loans made to borrowers with poor credit ratings — would cause problems. Lenders made too many loans to borrowers who didn't make enough money to make the monthly payments. The lenders then had to call on investment banks for help. In the case of New Century Financial Corp., the depth of the problem was such that some big investment houses such as Morgan Stanley felt compromised. New Century certainly faces grim prospects — a federal prosecutor in California is conducting a criminal investigation into its accounting errors and trading in its securities, and investor lawsuits loom — but the problem goes beyond one company. A broader response is needed. Consider the numbers: • Subprime home loans account for $1 trillion of the $8 trillion housing market. • The rate of delinquencies on subprime mortgages has reached 12.6 percent. For those with adjustable-rate mortgages, the rate is 14.4 percent. Now, consider the actions taken so far: • Federal regulators have called on lenders to exercise caution in making subprime loans and to strictly evaluate borrowers' ability to repay them. • Treasury Undersecretary Robert Steel announced that the government is monitoring the stress in the industry and believes the current situation is "manageable." • Attempts to rein in the "government-sponsored enterprises" Fannie Mae and Freddie Mac have languished. These two entities have dealt in subprime lending the past, and both have run accounting errors in the billions. Why are the government and the housing industry apparently doing nothing? Perhaps it is best perceived in remarks that Mortgage Bankers Association Chairman John Robbins made recently to the House Financial Services subcommittee. Subprime lenders, he said, are being punished by the market as investors abandon them. Indeed. But is that enough? Why can't changes being made that would prevent such irresponsible acts in the future, before thousands more Americans make bad loan decisions that ultimately hurt the economy? There are many lower-income people and members of minorities who deserve to own their own homes. But steering them toward high-risk mortgages that are steeped in overly complex terminology is not showing concern for first-time buyers. Adjustable-rate mortgages are a prime example. They typically draw consumers with a low, "teaser" interest rate, which then can escalate rapidly. It would be a reasonable step to impose — not suggest — guidelines that lenders provide clear and fair explanation of how such mortgages work. Yes, hard-working Americans should get a chance to own their home, but it's up to the lenders to be realistic with them about what they are facing. Some Middle Tennessee lenders reportedly are doing just that, by asking borrowers with less-than-middling credit scores for down payments instead of 100 percent financing. That's a good start.
New York Stock Exchange fluctuate after Fed statementAP Thursday 22nd March, 2007 Posted at caycompass.com NEW YORK (AP) – Stocks wobbled Thursday as lingering worries about the
subprime mortgage market and rising oil prices led investors to reconsider extending this week’s big rally. |
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