According to quantitative research conducted by CRL, not only do prepayment penalties lock borrowers into higher-cost loans or force them to give up the wealth they have built through homeownership, but they also offer no benefit in the form of lower interest rates. In this way, even if there is a nominal reduction in the interest rate due to the prepayment penalty, this is offset or more than offset by the payday loans in Nevada higher rate due to the yield- spread premium.
This situation has become more serious for families as property appreciation has slowed down in many areas of the country. Most subprime borrowers are salaried employees for whom verifying income by producing copies of W-2 forms is just not that difficult. The reforms we are seeking would require lenders to verify and document all sources of income using either tax or payroll records, bank account statements, or any reasonable alternative or third-party verification. Interest-only mortgages : These loans were originally intended for high-income borrowers who used this type of loan as part of a larger investment strategy.
Hybrid adjustable-rate mortgages (ARMs) are structured to cause families to fail.
Mortgage brokers and lenders use the initial low "teaser" interest rate to entice debt- strapped families into the loans. When the rate adjusts higher, homeowners are faced with the choice of another expensive and equity-stripping refinance or struggling to pay an unaffordable loan. Hybrid mortgages have been the predominant type of loan offered by subprime lenders in recent years, and these loans have been the largest single contributor to unnecessary foreclosures.
Analysts expect payment shock to be a continuing concern. Because subprime lenders typically qualify borrowers based on the introductory payment amount, most borrowers cannot afford to remain in these arrangements even if interest rates do not rise. This is even more stunning when one 5 203 Statement of Michael Calhoun June 26, 2007 considers that it costs only 0. Yet, in spite of widely publicized problems, subprime lenders persist in offering these dangerous loans.
This recent information from the field makes it clear that subprime lenders are continuing to make loans packed with dangerous features, and they will continue to do so until their abusive products and practices are declared illegal. As further evidence, we foimd that subprime lenders are continuing to place prominent advertisements designed to attract consumers to mortgages with dangerous features. We can do loans for the self employed or the W2 employee without requiring verification of income. Congress required the Federal Reserve Board to New Mexico loans for bad credit prohibit mortgage lending acts and practices for all New Mexico loans for bad credit originators that are abusive, unfair or deceptive, but the Board has taken no action under this authority, even though borrowers, state regulators, and advocates have repeatedly raised concerns about abuses in the subprime market. Seven years ago, members of the House Banking Committee urged the Federal Reserve to use its authority under existing federal legislation, the Home Ownership and Equity Protection Act (HOEPA), to issue regulations banning predatory lending practices that were already devastating consumers. So the question becomes, if there is a problem out there, if Congress has given very strong authority to regulators and the Federal Reserve, our regulators, is the Federal Reserve AWOL?
But the Statement alone is insufficient, applying to only the portion of the subprime market that is originated by 6 204 Statement of Michael Calhoun June 26, 2007 depositories or their affiliates, leaving no similar protections for the other half of the market that serves consumers that borrow from state-chartered finance companies. Earlier this month, we testified at a Federal Reserve hearing and asked the Board to establish clear, bright-line rules, applicable to all mortgage New Mexico loans for bad credit lenders, to protect consumers from predatory lending practices ubiquitous in the subprime market today.
Today, the need is to address basic underwriting failures by subprime lenders under section 129(1)(2) for all subprirae loans.
The Board not only has the authority, but also the statutory obligation , to address these lending abuses under HOEPA. In addition, Senators Schumer, Brown, and Casey have called for much needed funding to support community groups that specialize in foreclosure prevention. However, if the Board does not exercise its authority in this arena in a prompt and forceful way.
Congressional action on the above items, in addition to those that the Board is not considering, will be crucial in providing much-needed protections for consumers in the subprime market. The broker has specialized market knowledge that the borrower lacks and relies on. Yet, in most states, mortgage brokers have no legal responsibility to refrain from selling inappropriate, unaffordable loans, or to avoid benefiting personally at the expense of their borrowers. Moreover, because of the way they are compensated, brokers New Mexico loans for bad credit have strong incentives to sell excessively expensive loans.