Fixing America: The Subprime Mortgage Crisis

It's amazing how the housing marketing was booming so much and now it looks as if it will end up being the catalyst of the worst economic crisis this country has seen in many, many years. It's amazing because real estate is supposed to be a sure bet in one's investment portfolio. Real estate tends to appreciate in value because "we're not making any more land." But now we're seeing it actually depreciate in value. Some people are stuck with a high mortgage payment on a property that's now worth less than what they owe on their adjustable-rate mortgage. To make matters worse, they can't qualify for fixed-rate mortgage; they have no choice except to face foreclosure.

And thanks to all the greedy speculators, everybody's property taxes are higher because our homes were worth a lot more a couple of years age. We've lived in the same modest house for almost fifteen years, have done a few very minor improvements, and yet its value more than doubled by the time the boom peaked. Now I have to pay considerably higher property taxes because of the greed of others. Thanks.

To top it off, our government - which likes to stick its fingers into everything - has surprisingly little legislation in regards to what happened during the housing boom.

It seemed like at one time, the mortgage business was a reputable one. Then the real estate market boomed. It seemed like anyone who wanted to could hang up a shingle and call themselves a mortgage company. I can't begin to tell you how many pounds of paper from mortgage companies and real estate agents I shredded. I didn't need to look up the comps - they were printed on the mailings and flyers.

They even got into the telemarketing business. One company, Acacia Mortgage in Phoenix, blatantly disregarded the Do Not Call registry. I even had a heated argument with one of their agents who claimed they weren't subject to the DNC list. I asked him if he wanted my business, why was he arguing with me? What an idiot! Subsequently they were slapped with a $770,000 fine from the Federal Trade Commission. They said they would appeal. It's been a couple of years, and I haven't heard much about them. Can't even find their website anymore. Bastards deserved it.

Anyway, if I were in charge, here's what I would do:

1. For the immediate short-term, allow borrowers with an adjustable-rate mortgage to obtain a new mortgage fixed at a rate no greater than what they are currently paying provided they qualify at the current rate and are in good standing. Those who do not qualify at the current rate, but qualify for a lower rate within the range of the original adjustable rate, should be allowed a new mortgage fixed at the lower rate provided they are in good standing. Those who would not have qualified for the mortgage even at its lowest rate could be allowed to refinance at a fixed rate but only under strict guidelines and if they are in good standing. In other words, if a borrower has managed to keep up, by all means, reward them. Otherwise, if they've gotten themselves into a mess, too bad.
2. Require mortgage companies to adhere to laws and standards that are as stringent as those in the banking industry.
3. Require sufficient training and licensing for mortgage companies and real estate agents.
4. Require mortgage lenders to fully disclose all costs of the mortgage, including those that will be incurred if an adjustable rate increases.
5. Ensure that loan applicants actually qualify for a mortgage, even if the rate increases (gee, what a concept). Otherwise, the lender forfeits all protections afforded by mortgage insurance.

Personally, I would do away with adjustable rates. It caused a lot of havoc in the 70's, and it's causing even more havoc now. Get yourself a fixed rate. When you become eligible to refinance again, and the rates are lower, get off your butt and refinance. Otherwise quit whining and be glad you have a roof over your head that you can pay for.