What The Fed Isn’t Fixing. “The Fed's own report states that 60% of loans were originated through mortgage brokers in the last several years, [whose] “…interests may diverge from, and conflict with, their own interests." Particularly problematic [were] yield spread premiums, which gave brokers higher compensation for placing a consumer in a higher-interest, riskier loan. Yet… the Fed withdrew its proposal for even a modest rule requiring brokers to disclose whether they were getting a premium… Study after study showed that from 55% to 61% of borrowers had… credit scores to qualify for traditional, fixed-rate home loans but were steered into riskier subprime loans. Why? In part because mortgage brokers [benefited] that way.” (
US SEC: More Than 4 Dozen Subprime Cases Underway. “SEC Chairman Christopher Cox: Securities regulators have more than four dozen subprime investigations under way that involve subprime lenders, investment banks, credit rating agencies and insurers. The investigations also involve banks and broker dealers who sold mortgage-backed securities to the public… The SEC is focused on whether lenders disclosed risk profiles of underlying loans, whether they valued their portfolios appropriately and whether they made adequate risk disclosures to investors.” (Reuters, July 15th)
Mortgage Shakeup Won't Slow Subprime Crisis, Economists Fear. “Economists say a shakeup of the mortgage industry will do little to quell the subprime contagion that should batter the
Fed Oks Rule Forcing Lenders To Verify Subprime Income, Limit Penalties. “The Federal Reserve Board of Governors this morning approved tighter mortgage regulations that it hopes will help tame the wild subprime lending market. The rule approved this morning, as expected, requires lenders to verify the income of subprime borrowers before lending to them and limits prepayment penalties on these subprime loans. A summary of the rule released this morning said these new provisions in the 'Truth In Lending' regulations would apply to 'virtually all' subprime mortgages, and would 'generally exclude' prime loans.” (Thomson via Forbes, July 14th)
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