'Ethical Bare Minimum' Of The Housing Bubble

Kenneth Harney writes at the Washington Post. "The recent $325 million multi-state legal settlement involving Ameriquest Mortgage Co. suggests that not all is well on the home loan front, and that even experienced buyers and refinancers need to question more, review more, probe more before committing to what is often the biggest debt burden of their lives." "The alleged abuses by Ameriquest loan officers that triggered the states' legal actions constitute a how-to manual for mistreating customers. Some consumers complained that Ameriquest loan officers convinced them to pay higher-than-market rates with the oral promise that they would be able to refinance to a lower rate at some future date. Ditto on playing games with prepayment penalties. Loan officers are prohibited from influencing appraisers to inflate values under the Ameriquest settlement, but they also won't get to select the appraiser anymore, much less dictate the results." "The same goes for playing fast and loose with popular 'stated income' mortgages that require no hard documentation of borrower assets or income. Ameriquest loan officers cannot 'inflate or fabricate, or encourage [borrowers] to inflate or fabricate' earnings, bank deposits or other assets. Nor can they sign documents on behalf of their applicants." "Regulatory overkill? Hardly. Standards such as these, and dozens of others outlined in the new settlement, should be the ethical bare minimums for the entire mortgage industry." Another site wonders, 'Whose idea was this, and who said it was actually okay?' "As reported by the Washington Post on Dec. 10, 'Federal financial regulators appear to be on the verge of reining in one of the most popular mortgages in hot housing markets nationwide. The government finally seemed to say 'It's not okay,' in public remarks by the Comptroller of the Currency. But yesterday's Wall Street Journal said that fears of a 'regulatory crackdown on option-ARM lending practices turned out to be more bark than bite.' Why, then, did regulators suggest a 'crackdown' and then fail to crack down?" "Lenders who get the minimum payment on Option ARM mortgages are actually able to book the full monthly payment into their earnings. 'The banks' loan-loss reserves are low, by historical measures,' even as Option ARMs comprise dramatically higher percentages of their mortgage portfolios. As much as 80% of recent mortgage loans have been 'low documentation,' which means banks know very little about the creditworthiness of borrowers. As many as 13% of these borrowers are NINAs; 'no income, no assets,' which means 'customers get mortgages without disclosing their income and assets.' Why is this legal?"