Adjustable Rate Mortgages a Target for Lawmakers
February 2, 2007
SACRAMENTO, CALIF – Legislators in the capitol recently discussed reining so called “exotic” mortgage products and practices common in the state. According to the Associated Press, “California lawmakers on Wednesday began considering restrictions on unorthodox mortgage lending practices that have allowed hundreds of thousands of Californians to buy homes they otherwise could not afford.”
In recent years the trend has been moving away from the traditional 30 year fixed rate loan, and almost half of new home loans in California are so called “exotic” loans. Among these are adjustable rate mortgages (ARMs), negative amortization loans, and pay-option ARMs.
According to Raphael Bostic, associate professor at the University of Southern California School of Policy, Planning, and Development, “the exposure to these sorts of products, the growth, is unprecedented. The regulatory oversight of these types of practices is relatively lax.”
Federal bank regulators are concerned that banks need to better analyze borrowers’ abilities to pay the money they owe when utilizing nontraditional and sub-prime loans. Full and simple disclosure requirements as to loan repayment details are also top their list of concerns.
California state Senator Mike Machado, D-Linden, raised the issues involved with these risky and often misunderstood loans in a state Senate hearing, but no clear call to action has been embraced.
People involved in the mortgage lending industry do not want to see greater oversight of their business practices, and, according to Patrick McGilvray, J.D., President of http://www.TheHomeBuyingCenter.Com, “we’ve seen a sort of Wild West attitude towards selling home loans in California and throughout the country.”
Mr. McGilvray continued, “it is more difficult for somebody to be licensed to sell a small term life insurance policy than it is to get a job selling the most complicated and important financial product most Americans will purchase in their lives, the loan for their home. I believe that all people who sell home loans should be subject to sensible training requirements, especially ethics. Salesmanship skills alone should not qualify someone to sell home loans.”
Many Americans are facing foreclosure as a result of being unable to sell or refinance their home loans. Purchasers of homes often assumed that if their payments increased they could simply sell or refinance. Unfortunately, in many parts of the country, due to a stagnant real estate market, this option is now off the table.