Predatory Mortgage Lending Practices Under a Spotlight Across the Country
Now that a mortgage foreclosure crisis is sweeping the country through a combination of dropping property values, adjusting ARMs, and people who were sold bad mortgage products reaching the end of their refinancing options, a variety of state and federal governmental bodies and agencies have decided it's time to act.
The good news is that if the provisions being considered at various levels of government are enacted, it will be easier for the homebuyers of the future to avoid the traps that have helped to create the current wave of mortgage foreclosures. The bad news is that they won't, for the most part, do a thing to help those who have already been victimized by misinformation, bad advice, and even predatory lending.
Some of the recent adoptions and measures pending include:
- Freddie Mac announced that it will no longer purchase subprime adjustable rate mortgages (ARMs) if lenders have qualified borrowers at the introductory interest rate rather than considering their ability to pay after the scheduled interest rate increase
- Federal agencies have opened the issue of subprime mortgage underwriting guidelines for public comment
- Iowa Attorney General Tom Miller announced a package of legislative proposals aimed at predatory lending, saying that the worst abuses occur within the subprime mortgage lending industry
- The Ohio Attorney General's office is hiring three attorneys and three investigators who will be dedicated solely to cracking down on unscrupulous mortgage lenders
- The Senate Committee on Banking, Housing and Urban Affairs recently held hearings on predatory lending in the mortgage industry
Not all of the proposals and advocacy are coming from governmental bodies, either. The Center for Responsible Lending has released an extensive study about the foreclosure problem in the United States and the way that subprime mortgage lending contributes to that problem. And just this week, the National Urban League released a six point "Homebuyer's Bill of Rights" intended to make sustainable homeownership a realistic goal for more Americans, especially minorities.
The spotlight turning on mortgage lending practices is good news for future buyers, but it still leaves millions of homeowners already trapped in bad subprime loans in need of assistance. For homeowners facing foreclosure, that assistance may come in the form of refinancing, a debt workout that alters the mortgage repayment terms, or a Chapter 13 bankruptcy case that will allow the homeowner to catch up past due payments over time. In some cases, more dramatic remedies are available as well, as detailed in this recent Chicago Tribune article.