This seems vaguely familiar. The Obama administration has started a full court push to get banks to make more home loans available to people with weaker credit. After the housing collapse leading to the tanking of economy, many experts pointed out in congressional hearings on the problem of loans to unqualified owners and that Congress spent years demanding more and more loans to low income families with bad credit. However, President Obama has pledged that low income families would again be able to enjoy home ownership in his recent State of the Union address. I tend to resist such government moves in the market on economic grounds. This is a market that favors granting loans. There is already considerable incentive to find such business and the economy is finally limping back with home values going up. It would seem a bad time to pressure banks to grant loans to high risk home owners — as it is for high risk home owners to commit to such purchases.
I support the motivation behind this push and I admire Obama’s record of working for lower-income citizens. However, I do not think that the government should be pushing high risk loans at the very time that the economy is rebounding. I also do not think that the government should be the guarantor of high risk loans when we are shutting down essential programs needed by the public at large. With poverty at 1960s levels and cuts in educational programs, I would prefer more kids fully funded schools than more couples in high-risk homes.
These banks have an incentive for make loans but we have wisely passed regulations trying to require more support for loans across the board from banks to avoid another collapse. However, housing officials in the Administration are pushing for formal assurances to the banks that no one will face legal or financial penalties if these loans (as in the past) result in defaults and foreclosures. Interest rates are at an all time low (we just refinanced our home at an unbelievable rate). It is possible to secure exceptional rates for a home with a relatively low downpayment. The loans being pushed by the Administration concerns applicants who, even with the low interest rates, are not viewed by banks as good risks to actually pay off the loan. While more homes are likely to be built in helping the economy, more people will likely lose their credit and down payment money in foreclosures.
The rebound is less than a year old and remains sluggish in many areas. We are also facing continued unemployment problems and rising costs. Putting aside the wisdom of counteracting market decisions on high risk loans, I do not see why this is a wise move for those taking out the loans rather than renting a bit longer until they have the equity to support such loan burdens. Like most people, I want to see more people enjoy home ownership. However, looking at this objectively (and in light of our recent massive foreclosures on high and mid risk loans) is this a wise move at this time?
Source: Washington Post
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Who cares about kickbacks! The issue is whether a person can pay back what they borrow. Barney Fag loosened the requirements and look what happened. Now Obama -who still doesn’t know what he is doing- wants to return to the same policy that got us in the mess in the first place. If you can’t put at least 10% down then you do not deserve a house!!!!
Dog; It was WWII that got us out of the great depression not the new deal.
I have studied the Hoover years, the Great Depression, the Roosevelt New Deal. The tenure of this article reminds me of the Hoover people who criticized FDR for any and all of his programs. Same Yak, different generation of Hoovers. You folks should stick to vacuum cleaners. Ya need em to clean up the Hoovervilles.
Insurers Fined $15 Million For Massive Fraud Kickback Scheme
By Eleazar David Melendez
Posted: 04/04/2013
http://www.huffingtonpost.com/2013/04/04/insurance-fraud-kickback-scheme_n_3015966.html
Excerpt:
For more than a decade, four mortgage insurance companies paid illegal kickbacks to banks as part of a scheme that greatly inflated insurance costs for distressed homeowners, the nation’s top consumer financial regulator said Thursday.
The companies — Genworth Mortgage Insurance Corporation, United Guaranty Corporation, Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation — colluded with the banks, which forced borrowers to purchase policies from specific insurers, according to the Consumer Financial Protection Bureau. The companies agreed to pay $15 million to resolve the charges.
“In essence, the lenders were extracting financial kickbacks from insurers,” CFPB Director Richard Cordray said in a conference call with the media.
In a typical scenario, a homeowner taking out a mortgage must purchase insurance to protect the bank’s investment. But CFPB regulators alleged that in some instances, the price of that insurance was inflated because of back-room deals struck between the bank and the insurer. The insurance company would then pay the banks a portion of their profits, regulators said. Such arrangements violate the federal Real Estate Settlement Procedures Act, which the CFPB is in charge of enforcing.
CFPB officials declined to discuss whether the agency was considering legal action against the banks allegedly involved in the kickback schemes. But, Cordray said the agency was “continuing to look into the lender side of these captive reinsurance arrangements.”
“Consumers who are taking down mortgages and who put less than 20 percent [down] for the home purchases are generally obligated by the lender to put down mortgage insurance to protect their interest,” Kent Markus, director of enforcement at the CFPB, said.
“The impact on consumers of illegal kickbacks is that it raises prices,” Markus said. “In every kickback situation, there’s somebody paying and somebody receiving. It takes two to tango.”
Fifteen-million dollars is a tiny sum compared to the amount of illegal payments that have likely changed hands between big banks and insurance providers over the years around the country. CFPB officials repeatedly declined on Thursday to provide an estimate of how much money the agency believes was involved in kickbacks in this specific situation, but a previous report by the New York Department of Financial Services estimated that 15 percent of all premiums collected from mortgage borrowers on insurance nationwide migrate from the insurance company back to the bank as illegal kickbacks. The DFS also found the amount in premiums collected in 2010 was 5.5 billion dollars.
What is “weak credit:” and who determines it? If the government does not lean on bankers to be fair with credit then they will continue to be unfair. They are unfair yet they have government support and tax backup. Do you know what Blacklisting is and was? Where have you been JT? Right now bans in certain parts of the country wont lend money to people who wish to buy condominiums because they say that people who buy condominiums are poor risks and have weak credit. They have weak credit because they choose a condo and a bank gives them the appendage.
The author makes it look like the President is being a chump. Next the banks wont want to lend to women because they are quixotic. Then women will have weak credit. Then it will be the Jews, the Blacks, it is already hispanics.
“Those who refuse to learn the lessons of history….” Oh the hell with it. Here we go again.