In preparation for this hearing, we Virginia cash loans examined data from ten re- cent securitizations of subprime mortgages, loans Illinois need cash originated after the current crisis began. Unfortunately, we found that these same mortgage abuses continue. Specifically, we found that these recent loans had the following features and characteristics: First, the exploding ARM loans continue to dominate.
Nearly three-fourths of these recent loans were adjustable rate mortgages where initial monthly payments increased by 30 to 40 percent, Illinois need cash even when market rate interest rates do not increase.
In addition, these loans were typically underwritten only to the initial teaser rate. Seventy percent of these loans had prepayment penalties that locked borrowers into bad loans and are used with kickbacks to mortgage brokers. Finally, very few of these loans — only about a quarter — have es- crow for taxes and insurance, which makes the monthly payments appear lower, but results in financial stress when the bills come due. These practices continue because the market structure has not changed. Most of these mortgages are sold to borrowers by mortgage brokers, and the number Illinois need cash is actually in the subprime prime market about 70 percent.
The chart that was shown earlier, a significant number of mortgages, subprime mortgages originated by national banks still come through the broker channel, and so that is how you get to the 70-percent figure. These brokers are paid bonuses for putting borrowers in higher- interest-rate mortgages than the borrower qualifies for.
Brokers are paid at the loan closing and have little interest in whether the loan is sustainable in the long term. Indeed, when a borrower is forced to repeatedly refinance an exploding ARM mortgage, this flipping of the mortgage produces additional revenue for the mort- gage broker.
Second, there is an absence of substantive protections for Amer- ican homeowners. We are also hopeful that the Federal Reserve will act soon using its existing authority and mandate to stop abusive mortgages. I want to address very quickly a couple of comments that have been made. First, the subprime market is working well for most borrowers. An additional 5 percent of those mortgages are now in foreclosure. If 15 percent of the mortgages are either in foreclosure or serious trouble at any time, that adds up to a lot of families who get harmed over any number of years.
These cannot be explained by the traditional disability, di- vorce, or job loss.
Those have not doubled in recent years, even though foreclosures have. It cannot be explained by the unemploy- ment figures. If you Illinois need cash look at the seven highest unemployment fig- ures of States across the country, four of them have above the na- tional average for foreclosures, three of them have below the na- tional average for foreclosures. But if you look at the fact that borrowers are getting exploding Illinois need cash ARMs underwritten to the teaser rate, using up to 55 percent of their gross, not their take-home pay, with no documentation of their income, no escrow, and often inflated appraisals, it would be a shock if we were not having a foreclosure crisis.
In summary, we are seeing the same abusive practices because the incentives and regulatory framework have not changed. This market presently works only in the same sense as the student loan market was working with widespread kickbacks and steering that was profitable for some colleges and disastrous for many students. States have shown that you Florida installment loans no credit check can enact strong protections for con- sumers and that the subprime market will continue to thrive. The subprime volumes have quadrupled in the last Illinois need cash 6 years despite in- creased regulation. We at the Center for Responsible Lending strongly support the subprime market and its continued growth, but it needs to become a product that enriches families, increases homeownership, rather than negatively hurts so many American families.
Calhoun, and I want to thank our broad range of witnesses.
We will try to go two rounds in the questioning if we can. We will try to limit questions to 5 minutes as best we can. Do you believe there should be some regulation of the mortgage broker and of the mortgage lender in those situations, or none at all? Well, I am confused as to how he would not have known what the fees were involved, because as a broker, I would have to disclose all of that yield spread premium on the good-faith estimate and on the HUD. I think what happened here, because I know this case well, is there were a whole lot of papers with a whole lot of fine print. The bottom line is people are defenseless here, and you can — you know, it is almost like caveat emptor, and there is disclosure in a way that is beyond the reach, not just of 22 a few people but of many, many, many, many people. And the only way to deal with it is some form of responsibility.
And your organi- zation seems to feel that — I mean, it will not hurt the responsible people who are doing a good and fair job. It will just regulate the bad ones who give the whole industry a bad name. So why would you be against this kind of regulation?
Yes, in terms of — I was asking a broader question.
In terms of some regulation of the mortgage broker by the Federal Government, because right now it is very limited and up to States, and States do not do it. Well, I think a Federal requirement would pre- empt what Chairman SCHUMER.
I am just asking would your orga- nization be willing to support such a requirement.