Subprime Mortgage Lending – 2007 Statement on Subprime Mortgage Lending
by Renegade98
In June 2007, the United States Treasury Department, along with other federal financial regulatory agencies, issued the Statement on Subprime Mortgage Lending. This document incorporates the Statement on Working with Borrowers published by the agencies two months previously, and is intended to supplement the recent Interagency Guidance on Nontraditional Mortgage Products. The agencies specifically targeted lenders who use adjustable rate mortgages (ARMs), addressing the necessity for appropriate guidelines in this area. One main concern for financial institutions using ARMs is the offer of a “teaser rate”. This brings in a borrower at a very low rate of interest for a brief period; however, within a few months this adjusts up to a much higher rate, based on prime plus a formulary percentage. Thus an ARM is changed very quickly from an affordable product to one that subprime borrowers cannot carry without undue financial hardship. Here are some other concerns expressed by the agencies in their Statement.
A second practice of concern to agencies and addressed in the Statement on Subprime Mortgage Lending is failure to disclose fully to the borrower how these ARMs will affect future payments. In addition, so-called “liar loans” are being underwritten by some less scrupulous subprime lenders. These loans are more politely referred to as “statement of income” loans: a potential borrower simply states on an application form how much money he makes. No verification of this income is required, nor is any attempted by the lender. Such total lack of due diligence and documentation of the borrower’s repay ability means that the lender assumes greater risk of default, while the borrower is more likely to fail to meet the financial responsibility. “Statement of income” loans were originally intended for people who are self-employed, and would be unable to produce pay stubs or a W2 form to substantiate their income claims. Liar loans are a clear abuse of this intention.
A third concern described in the Statement on Subprime Mortgage Lending refers to penalties for early prepayment extending far into the term of the loan. Such penalties are usually quite substantial, and are not always fully explained in advance to the borrower. Moreover, subprime borrowers are not always informed about additional monthly payments, like insurance, taxes, and closing costs that accompany the purchase of property but are not part of the loan itself.
Three months before releasing the final Statement, the agencies released it for comment from the public, as well as from members of Congress and various financial institutions. It is interesting that the lending industry’s most repeated comments were in opposition to the requirement of full disclosure of rates and fees relating to ARMs. Such full disclosure was described as “information overload.” We find it difficult to understand how non-disclosure of all costs connected with a loan could be considered anything other than deceptive lending practices. It is only when subprime lenders offer full disclosure and open discussion to borrowers that they will be thought of as reputable entities. To fight mandatory disclosure of costs and fees seems to indicate that they have something to hide.
Most comments on the Statement also pointed out the need for a better, more inclusive definition of the term “subprime.” The final 2007 Statement references the Expanded Guidance (2001) for full criteria for considering a borrower “subprime”.
The 2007 Statement recommends that the borrower be given a full schedule for repayment of the loan, including an informed estimate of associated closing costs, insurance, and taxes. This should be provided by the lender at the time the loan originates. The document also recommends that these extra charges be calculated into the borrower’s debt-ratio status.
All in all, the 2007 Statement on Subprime Mortgage Lending provides excellent guidance for the many questionable practices that seem to have become intrinsic to subprime lending. It is inclusive of other earlier such statements, and refers the reader to the earlier 2001 Expanded Guidance document when necessary.
The Housing Bubble bursts on a speculator. Parody using a clip with Hitler as the real estate investor. He bought a house to flip, faces foreclosure, and now wants to get bailed out. Parody Fair Use of clip. See: www.publaw.com/parody.html
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Had we surrendered to Hitler in WWII,rents would be much cheaper today.
see my parodie!
I live in SWFL and I just died laughing -Realtor
@Dagarvs: Not funny at all. He lost his Camaro SS
Bernd Eichinger, producer of Downfall (interview on baader-meinhof com)
“I find those parodies tremendously amusing! Obviously, the film and this scene in particular is a real fire starter for people’s imagination. What else can you hope for as a filmmaker? This is moviemaking heaven! My favorite one is when Hitler is having his tantrum over his losses in the real estate crisis….”
@Beingreal40 Who do u think is laughing swimming in their pools of money? Hahaha? Yeah real estate people that flip houses and create housing bubbles are douche bags.
@spectrum0590 Yeah the real estate people that flip houses and create housing bubbles deserve what’s coming to them. There are thoese SMART people with common sense know that live within their means.
This is really good! It was fun watching this video and able to learn about real estate.
I always watch these clips just to see what the creator does with the “STALIN” explosion.
This one not so hot in that area… but makes good use of the reference to the SS.
I think this one is one of the best parodies..
fema camps in the USA, it’ so weird that more foreigners know what is going to happen to americans than americans do…read up on it folks, it’s decision time, you’re not safe… tick tock tick tock
LOL!!! Maybe they should have consulted the BetterBusinessBorrow dott comm
Excellent! This is what it takes for everyone to realize what’s going on..
A wonderful dubbed adaptation of this scene in the movie “Der Untergang”
Great video and the actors were terrific. You may wish to view my recent video “Economics for the Average Joe.” It is in line with this video.
Sanford Kahn
Wanna laugh? check out my Hitler parodies, the Sir Simon series!
Hey I know someone that can maybe give you some answers! Check him out at wwwhampghcom
As a Realtor , , and WW II historian , , I love this parody and completely enjoyed listening to a parody without every other word being a cuss word , , , Well done !!
@MatrixFactoryGuy I do not know if you are being funny or serious, but , I think that the doom and gloom scenario is going to play out. I mean it will come on gradually, more and more cities will resemble places like Newark or Detroit, our crooked politicians will become more and more polarized, very dark days to come. Don’t be fooled by the patch job Big Brother did via the money helicopter, major structual problems were not corrected, never will be.
NASA=NAZIS=SS=CIA=MAGNIFIQUE
Ummm let’s kill all da brokers
hitler…..yeaaaaaaaaaaaaah!..lol
“I’m going to miss those granite countertops” — best line!
“I’m going to miss those granite countertops” — best line!
Not such a funny video anymore after discovering all the fraud the broker, lenders, and banks did to the people.