Summary of Foreclosure News
By Foreclosure-Fighter Staff Writer
In a statement before the House's Committee on Financial Services last week, Ben S. Bernanke, chairman of the Board of Governors of the Federal Reserve System, presented information about the state of home ownership and foreclosure in the United States.
Bernanke began his statement with some overview of the recent history of mortgage lending and home buying across the country. He attributed a general rise in homeownership over the last 13 years to a greater supply of mortgage credit, an increase that was largely the result of increased subprime lending and the originate-to-distribute model of lending.
more entities stand to lose when a homebuyer is unable to make mortgage payments and faces foreclosure.It's
In this model, lenders sell their loans to large firms, and are able to spread the risk of loans over a greater group of investors. Unfortunately, this means that no wonder, then, that economic stress has been felt by many companies now that 15% of subprime ARMs are delinquent. This figure is almost triple what it was two years ago. Actual foreclosures, too, have increased significantly.
In each of this year's first two quarters, 320,000 foreclosures were initiated. The average for the past six years was 225,000. These increases can be traced back to the originate-to-distribute lending model, which allows for slackened underwriting standards and therefore riskier loans.
The cause of all these foreclosure woes? According to Bernanke, fragmentation of the mortgage originators in the subprime lending industry is largely to blame. He cited statistics showing that most mortgages these days are obtained through independent brokers who work on behalf of a greater lender. These independent brokers are more difficult to regulate than large companies.
To rectify these problems, Bernanke proposed more nationwide uniformity of regulatory codes. He mentioned one program already underway that will have across-the-board national regulations, licensing standards, and databases for those in the mortgage industry. This will prevent those who run afoul of state law from simply crossing state lines and continuing their practices. Those measures are set to go into effect in January of next year.
Bernanke's other suggestions were more vague, and included a modernization of FHA standards and a re-emphasis of the need for government institutions to stick together to provide uniform backing to the mortgage industry.
Bernanke also mentioned that he plans to introduce more consumer protections later in the year.