Solutions to the Subprime Mortgage Crisis?

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What would some solutions be to reduce this kind of loan activity? Or what should be done in general…

  1. Reply
    April 29, 2011 at 10:52 pm

    The solution is to not give people who can’t afford a house money. The reason they got the high sub prime rates is because they were at risk of not being able to pay back. The lenders got greedy and now they had a lot of losses because of it.

  2. Reply
    Bernie K
    April 29, 2011 at 11:00 pm

    Get back to mortgage underwriting standards that require a downpayment or some personal investment by the buyer.
    Do away with 125% and other exotic ARM types and IO loans that will re-set to payments that under any circumstances are a great risk to the borrower and to the lender.

  3. Reply
    J. Philip Real Estate
    April 29, 2011 at 11:51 pm

    1. Require full documentation for borrowers with less than stellar credit. Stated income loans should be for self employed professionals whose tax returns show a lower adjusted gross income but have high cash flow, not the “liar loans” they were in recent years for ditch diggers.

    2. Require licensure and annual audits for all loan officers. In New York, loan officers do not require a license to do their work, yet real estate agents and home inspectors do. This will make LOs more accountable for the horrendous loans some of them originate.

    3. Outlaw “drive by” appraisals which overvalue homes. Require review appraisals for any loan with a seller concession. Suspend the license for any appraiser tied to an inordinate number of loan defaults.

    4. Make it a felony for a lawyer to represent both the borrower and lender in a transaction.

    5. Raise the credit and documentation guidelines for non-FHA, low downpayment (highly leveraged) home loans.

    6. In the 90s, people were skeptical about adjustable mortgages. In 2001-2006, that healthy fear evaporated in the irrational exuberance of the time. Before people sign an application for an ARM, require that they sign a disclosure that warns them of the potential risks. Include the amount of their payment after the adjustment. Do the same thing for interest -only and negative amortization loans.

    7. Do not allow mortgage-backed securities to be backed solely by sub-prime loans. Diversify the portfolio and minimize the risk.

    8. Fine a bank found guilty of predatory lending the exact amount of the mortgage, plus 30 years of interest.

    9. Levy a fine of $ 1,000,000 per instance to any bank that will not allow the borrower to negotiate a short sale in good faith.

    10. Too many people got to closing and were faced with either paying more points and closing costs than they were quoted or not close. Most closed to avoid breach of contract or be in hot water with their bills. Pass a “bait and switch” law which will forfeits the yield spread premium and fees of the mortgage company if the actual closing costs are 10% higher than the Good Faith estimate signed by the borrower.

    11.This has already been done, and it is the right move: raise the FHA and conforming loan limits. Subprime grew because the FHA program for 1st time buyers didn’t change with the times. Now things are revised, and the FHA program, which is probably one of the best ever housing initiatives ever, is now relevant again.

    If rules like this were instituted, lenders would be more cautious, prudent and sensible in their lending practices, and the consumers would be better protected. More loans would be denied, but those are loans that should not be made in the first place.

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