The real estate market turmoil in the last few years has affected the mortgage industry in unprecedented ways. For the first half of the last decade, the industry was guilty of handing out mortgages like parade clowns frantically tossing candy to spectators.
During this time, many bankers and lenders were pressured by stockholders and greed. They overextended their funds by investing in a booming real estate market. In order to get a bigger share of loans they lowered the bar of qualifications for borrowers by lending money to people who were not creditworthy or did not have enough income.
In addition, lenders lowered their own policy standards. For many years lenders would not loan more than 80 percent of the value of property. However, to make more loans in the booming real estate industry they began making loans on properties with higher loan-to-value ratios.
These bankers and mortgage companies began loaning 100 percent of the value of properties and writing marketable flexible rate mortgages. Many then minimized their risk and took advantage of a quick profit by selling off the notes. They took the money and ran, hoping to avoid any liability. The investors who bought the mortgage notes desperately wanted in on the mortgage gold rush. This caused investors to write and buy all the loans they could. They were counting on the values of real estate continuing to appreciate. Many investors were stretched thin and there were no doubt bankers and investors in bed at night sweating and hoping that the real estate market boom would continue. What happened next was their worst nightmare.
Many people could not pay the loans and simultaneously real estate values began to fall. Soon bankers and investment companies began foreclosing on property and taking large losses. The losses became so great the entire world economy was shaken. The United States government had to step in, loan money, and take over companies to keep them from collapsing. The repercussions of all this will continue for years.
Todayâ€™s real estate market is in a situation caused by the mortgage industry. In response to the mortgage crisis, the mortgage industry is under scrutiny by the Consumer Protection Agency. In 2012Forbes.com reported:
â€œWashingtonâ€˜s consumer watchdog agency is hoping the country can avoid another housing crisis by introducing new rules that force mortgage servicers to engage with borrowers more frequently.
TheConsumer Financial Protection Bureau outlined key elements of rules that it says will protect mortgage borrowers from unexpected fees or â€˜getting the runaround from their mortgage servicer.â€™â€
Todayâ€™s mortgage lenders are prohibited by Loan Originator Compensation and Steering (Reg Z) from paying a loan originator or broker based on loan terms such as interest rates, annual percentage rates, loan-to-value ratios, or other loan provisions.
Amid new rules and regulations, and the current market environment, lenders now weary of losses and under scrutiny have taken steps to safeguard against another market collapse. Some things lenders have done include:
- Tightened loan qualifications
- Providing complete and inclusive loan information to borrowers
- Developing more stringent documentation requirements
Lenders are working to keep delinquent borrowers informed of credit counselors and other servicers that can help them avoid foreclosure and minimize lender real estate owned properties while closely watching current.