Regulators Urged To Adopt National Mortgage Standards

Citing an urgent need to address questionable mortgage and foreclosure practices that have helped stall the broader economic recovery, a group of economists, analysts and financiers has signed a letter to Federal regulators, calling on them to develop national standards governing the mortgage process.

The signatories, including economists Nouriel Roubini, Dean Baker and James K. Galbraith, call on regulators to carry out their duty under the Dodd-Frank financial reform to create rules for the market in mortgages. Banks that originate mortgages must maintain "skin in the game," the letter says, so that they have a financial incentive to create reliable loans, even when they sell them to other entities.

Current mortgage practices, the letter says, are "chaotic." Bank employees have said their companies committed critical errors, such as losing, botching our otherwise falsifying paperwork -- practices that can prevent worthy homeowners from receiving mortgage modifications, or cause them to unfairly lose their homes. Last year, 2.8 million homes received foreclosure notices, according to real estate data provider RealtyTrac. And 7.4 million more will enter foreclosure this year through 2012, the Federal Reserve predicts.

"People are getting away with just about anything," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, and a signatory of the letter. "There's a lot of real slop in assessing fines."

Baker added that while he isn't sure to what extent new regulations would alleviate the current crisis, they would help homeowners and investors going forward.

The letter's addressees include Treasury secretary Tim Geithner, FDIC chairman Sheila Bair, SEC chairman Mary Schapiro and Federal Reserve chairman Ben Bernanke.

READ the letter below:

PPM191_securitizationstandardsletter_final_122110

Comments

[MikeyJaii]

02:48 AM on 12/25/2010

More like the banks are getting away with anything....

[Tanya Cole]

02:13 AM on 12/22/2010

The Refi Plus program will waive the normal credit score requirement for a refinance; it will have reduced documentation standards for proof of income; and it will allow for computer-based appraisals, which tend to inflate the value of a home and make it easier to qualify for a refinance. Search online for "123 Mortgage Refinance" they are the best and fast.

[Karla Mcduffie]

09:08 PM on 12/21/2010

Bank of America estimates 45k foreclosures in Dec '10 nationwide. That's just ONE bank - ONE month. Having just fought a 6 month battle to get our home out of foreclosure, I can tell you: banks aren't lending. Record numbers of modifications have banks hiring under-qualified people and giving employees overtime and weekend hours.

One employee told me, "Your average person will have to send in their documents 3, 4 or 5 times!" Do the banks have a vested interest in keeping the economy sluggish? Hell, yeah.

Your talking heads, featured economists talk of tarp; big banks have broken records for profits this year. On whose backs? You should see all the new mysterious "fees" piled onto mortgages now. The excuse they use is "the new regulations the feds have imposed."

I can say more. My lender is CitiMortgage. Crooks, liars. We cannot sustain a democracy when fair exchanges of money for goods and services is not maintained. Apparently, they don't care about what is just, what is fair, what is honest.

McDuffie

[HamletsMill]

08:14 AM on 12/22/2010

We are in big, big trouble. Our entire economy is gamed by systems of massive corporate fraud and institutional swindlers with no end in sight. Ever. My prayers and best wishes are with you!

[LibertyRoy]

08:18 PM on 12/21/2010

The GOVERNMENT allowed the mortgage tax deduction, thus giving "welfare for the middle class" and causing prices to go up for homes more than they ever would have without it.

The GOVERNMENT created Fannie and Freddie to package loans, allowing banks to write bad loans, sell them off and infect the system.

The GOVERNMENT, via Barney Frank and others, pushed Fannie and Freddie to give loans to those who could not afford it, leading to the whole mess.

The GOVERNMENT, via the Fed (which they brought into existence) lowered rates after the dot.com collapse, leading to the housing bubble.

And what is the response of the big-government libs? They say that the FREE-MARKET failed!!!!!

[HamletsMill]

08:16 AM on 12/22/2010

Please learn what a Credit Default Swap is.

[KaptainKen]

09:51 AM on 12/22/2010

Item by item, Roy;

IRS allows a mortgage INTEREST deduction, not a TAX deduction: The logic being one person's interest payment is another person's (or banks) profit. Eventually it gets taxed.

Historically, banks which wrote "bad loans" couldn't sell 'em to Fannie or Freddie for re-packaging as bonds. F&F at their creation and until recently had high standards for mortgages.

"The GOVERNMENT .... pushed Fannie and Freddie to give loans to those who could not afford it ..." Actually F&F asked the government for permission to lower mortgage standards in order to remain competitive in the third tier mortgage backed bond market.

"The GOVERNMENT , via the Fed ... lowered rates after the dot.com collapse, leading to the housing bubble." Partially true: the FED lowered rates in order to avoid a recession after the dot.com collapse. The housing bubble was an un-anticipated result. The FED operates independently of the federal government. The role of the government is restricted to appointing key officers of the FED.

[KaptainKen]

06:19 PM on 12/21/2010

We had mortgage standards, and tough ones too. Fannie May and Freddie Mac had tough requirements on mortgages they would buy. That was when they were quasi-government entities.

Then they were privatized. According to them, they had to loosen up on mortgage requirements in order to "remain competitive." They began buying "zero down" and "sub-prime" and other relaxed requirement, non-conventional mortgages. See where THAT has led us.

[Freddd Green]

07:20 PM on 12/21/2010

F&F never privatized, you are full of misinformation

[vabonp]

11:46 PM on 12/21/2010

Your right - they never privatized. But they forgot that one of their responsibilities was to make sure the mortgages they were backing were properly underwritten and documented. They were acting like an out-of-control government agency.

[KaptainKen]

08:38 AM on 12/22/2010

Fannie and Freddie " ... have operated since 1968 as government sponsored enterprises (GSEs). This means that, although the two companies are privately owned and operated by shareholders, they are protected financially by the support of the Federal Government."

http://hnn.us/articles/1849.html

[samtee]

08:00 AM on 12/22/2010

F&F set standards that would give no money down loans with no proof of income and were the one's that set the standards for banks to give out the loans and they would buy them

[KaptainKen]

09:16 AM on 12/22/2010

Regret to say that you have the situation EXACTLY backwards.

Frannie and Freddie are not and were not the only buyers of mortgages to package and re-sell as bonds. Mortgage backed bond investors asked investment banks (Goldman-Sachs and others) for more mortgage backed bonds (demand). They liked 'em and they were, historically, very secure. In order to get more mortgages (supply) to package and re-sell as bonds, investment banks told mortgage originators to go ahead and lower buyer standards previously required for a conventional mortgage loan to generate more mortgages. After all, the investment banks had bond buyers waiting. And these newer bonds had a higher rate of return than bonds backed by Fannie and Freddie's conventional mortgage backed bonds; More attractive to investors.

Fannie and Freddie, in avoid being shut out of third tier of the mortgage backed bond market followed suit and lowered their standards.

In a time of increasing home values this seemed safe. But as we all have seen, not so safe after all.

[GoldsteinD]

05:53 PM on 12/21/2010

a little late. this memo should have been sent to Bawney, Dodd, Freddie and Fannie about 5 years ago

[pcflamingo]

06:56 PM on 12/21/2010

And former Pres. Bush as well, cheerleader-in-chief for homeownership for all....

http://www.nytimes.com/2008/12/21/business/21admin.html

[ejhickey]

02:43 AM on 12/22/2010

you are both right

[BlairCase]

05:17 PM on 12/21/2010

Urging government to take "appropriate action to maximize the present net value of mortgages" runs counter to mortgage reform. Unsafe loans made to homebuyers who had little chance of paying them back created the housing bubble, making median-price homes unaffordable to median-income families. Home prices need to fall until median-income families can once again afford median-homes without resorting to toxic mortgages.

[catbite]

04:50 PM on 12/21/2010

What a ridiculous title! Have these experts and economists been living on Jupiter for the past 2 years? Control the mortgage process? What a novel idea. Who's the genius that decided NOW that we should do something.

As an unemployed person I ask how these experts and economists keep their jobs when they are thoroughly incompetent.

[alan2a]

04:12 PM on 12/21/2010

What Administration is in charge now? Didn't we elect a Democrat in 2010 who's job was supposed to be to stop these kinds of fraudulent practices. Wasn't he supposed to do something about the Banks and Wall Street other than given them hundreds of billions of dollars. Did I miss something? Was I confused in 2010 and actually voted Republican?

[nowThenzen]

04:37 PM on 12/21/2010

yep .. DLC Democrats are the Moderate Republicans (pro - Corporate and gay tolerant)

[fortressfountain]

04:05 PM on 12/21/2010

The mortgage company is responsible for giving the loan. The mortgage company and the finacial instutues are suppose to act as an agent for the buyer. Giving them good and honest advice.

[pcflamingo]

06:46 PM on 12/21/2010

Mortgage companies and financial institutes "act as an agent for the buyer" in exactly the same way that car salespeople act as an agent for the buyer. Mortgage loan originators (loan officers) are virtually all commissioned sales people and their primary concern is how to close the deal, not whether the deal is in the financial best interest of the consumer.

Believing anything different is like walking into the lions' den with a porkchop tied around your neck.

[fortressfountain]

03:53 PM on 12/21/2010

The only problem you would have is if you owe a small tax bill and then the vultures would swoop in for the kill.
If I were these people I would stay in my home for a year and infest it with roaches and bed bugs when I checked out.

[pushpause]

10:30 AM on 12/23/2010

People do that, and worse. I maintain these homes for banks for a living. Going into year 4. Oh, the things I've seen.

[izzat7]

03:46 PM on 12/21/2010

Last nights Rachel Maddow show, Nuriel Roubini predicts a second housing collapse.

[cureyourosity]

03:31 PM on 12/21/2010

Don't worry Obama's got it all under control!

[Eric Burke]

03:29 PM on 12/21/2010

Thomas Jefferson warned us of the bankers. Today I'm sure its quite evident the bad effects of loaning.
My belief is within moderation it can work. Like many I have a bank loan on my house. The way i make it work is I don't celebrate Christmas, I don't stack up credit card debts to unreasonable proportions. I live within my means. I have solar power generation in my household which reduces monthly bills and moreover I do my part in helping the power crisis my government is faced with. I also don't subscribe to cable and create unnecessary expenses. I'm more than certain if everyone was like me in North America we wouldn't be faced with the present problems.
What I hate is that I never hear of the stories of people who make it work and found away to eliminate unnecessary expenses. I'm sure if more people where cautious there would be more ways to eliminate debt.

[Linda from Deerfield]

07:03 PM on 12/21/2010

You can find a lot of people who live modestly and low impact, whether to afford a home, save the earth, honor their grandma, keep priorities straight, have fun, focus on community, or something else. Many blogs cater to them. Now that you mention it, I guess the mainstream stories about them are few, but I think it shouldn't be too surprising since they/we are not the big spenders that the big advertisers demand to support the MSM. I like to think that it is a parallel America that will overtake the populace because over-the-top materialism is just not that appealing in the long run.

[Linda from Deerfield]

03:27 PM on 12/21/2010

I'll bet some of the meanest comments come from people who used liar loans to leverage themselves up into houses that they sold at a profit and told themselves they were entrepreneurs. They helped make homes unaffordable, and they either lucked out in the game of musical chairs (houses), or they didn't and they're keeping quiet about it.