Warnings of Mortgage Meltdown Were Ignored

According to a review of regulatory documents by the Associated Press, the Bush administration ignored multiple warnings of impending financial meltdown during the last five years and didn’t follow through on federal regulator’s proposals for tighter regulations.

In 2005, federal bank regulators proposed new guidelines for banks writing risky loans. They proposed a cap on the number of exotic mortgages and sought to make banks that bundled and sold mortgages inform buyers about their risks. The proposal also would have required banks to better vet potential borrowers and clearly inform them of the potential for skyrocketing interest rates.

The proposals didn’t require congressional action or a presidential signature, but the banking industry lobbied heavily against the proposals and administration urged regulators to drop them.

Diane Casey-Landry, of the American Bankers Association, said industry opposition was based on the banks’ best information. “You’re looking at a decline in real estate values that was never contemplated,” she said.

Source: The Associated Press, Matt Apuzzo (12/01/2008.)

Home Loan Aid Programs May Face Cuts

Nonprofits that funnel money from sellers to buyers are under attack by the Bush administration, but supporters say that these companies help thousands of middle-income people who would otherwise never save up enough to buy a home.

The Federal Housing Administration requires a down payment of 3 percent, but no-money down loans using charitable down-payment assistance grew to about 35 percent of the agency’s new loans last year, up from about 5 percent in 2001.

Defaults are higher than the FHA’s other loans. As of February, about 10 percent of borrowers receiving seller-financed down-payment assistance were either 90 or more days delinquent or in foreclosure, government statistics show.

That’s greater than the rate of about 6 percent for ordinary FHA loans, but less than the rate of about 24 percent for subprime loans made to borrowers with poor credit.

Supporters say that the programs would significantly reduce access to homeownership and some tightening of the regulations would solve problems with the program.

Source: The Associated Press, Alan Zibel