A couple of weeks ago I wrote a column that referenced recently retired senator Christopher Dodd and Rep. Barney Frank as the most vocal supporters of increasing homeownership in America. With such support also came their support of subprime lending.
In my 19 years in business, I have never originated a single subprime loan, no matter how lucrative it might have been. Subprime loans just never made sense to me.
A very good client of mine works on Capitol Hill and sent me a message indicating his disagreement with my criticism of Mr. Frank and Mr. Dodd. He's right. There's plenty of blame to go around.
I'd like to recap the "blame game."
First, the federal government: The Clinton administration, enthusiastically followed by the Bush administration, supported "easy money" credit policies that opened up mortgage giants Fannie Mae and Freddie Mac to their version of subprime lending, known as "Alt-A" loans. These administrations wanted to increase homeownership in America.
Second, Wall Street, Fannie Mae and Freddie Mac: During the housing boom, Fannie and Freddie, along with Wall Street finance companies, loved the subprime market. They gobbled up high-yielding subprime loans like a child does candy, assuming property values would always rise and therefore minimize defaults.
Third, mortgage originators, including lenders, bankers and brokers: These folks were in charge of loan production. This meant Fannie, Freddie and Wall Street could receive their yields, and the federal government could tout more homeownership. Not all, but many of these originators solicited loans that were not in the consumers' best interest.
Last, the American consumer: I'm a firm believer in personal responsibility. Just because a lender is willing to lend a consumer a million dollars, does that mean the consumer should take the loan? The consumer bears much of the responsibility of this mess by taking a mortgage in excess of what he can afford.
The full aftermath of the mortgage meltdown is yet to be determined, but I can tell you the myriad new laws, regulations and licensing requirements is overkill.
I chose to be an independent mortgage broker 19 years ago. It was the only position in the mortgage business where I could effectively look after my clients' best interests and put together the most appropriate and most competitive loan package. When I worked directly for a bank, I was limited to one bank's products, which restricted my abilities to help my clients.
The mortgage business currently is like a big ball of tangled fishing line. Loans are being made, but the new laws are still very unclear. My biggest fear is that the new legislation resulting from the overreaction to the mortgage meltdown will kill off the supply of local independent loan originators. The last thing the consumer would want is only three or four giant banks offering mortgage money.
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