Chapter 1 - WHAT'S THE MATTER WITH THE MORTGAGE MARKET? - 8/22/2007
THE TROUBLE STARTS WITH REAL ESTATE AGENTS
Chapter 2 - WHO'S RESPONSIBLE FOR OVERSIGHT OF THE MORTGAGE MARKET? - 8/26/2007
THE TROUBLE IS "MONITORED" BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
THE FEDERAL RESERVE FAILED IN IT'S MISSION TO SUPERVISE FINANCIAL INSTITUTIONS
12 USC; ch. 6, 38 Stat. 251 (December 23, 1913) Federal Reserve Act [Mission]:
To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.
OVERSIGHT IS CRITICAL TO PRESERVING THE INTEGRITY OF THE MORTGAGE MARKET. Why do we need oversight of the mortgage industry? Because the consumer cannot be expected to understand the variety and complexity of mortgage instruments offered by the mortgage industry today. Real estate agents cannot be expected to understand the variety and complexity of mortage instruments offered by the mortgage industry today. See: Joint Center For Housing Studies PRESS RELEASE - April 26, 2007, which says in part:
"Many of today's innovative loan structures seek to provide mortgages that help prospective homebuyers overcome affordability barriers, yet the push-marketing of inappropriate mortgage products to unsuspecting borrowers has the potential to harm individual families and spark a wave of foreclosures that can destabilize already fragile neighborhoods."
THE FEDERAL RESERVE FIDDLED AND "MONITORED" WHILE THE MORTGAGE INDUSTRY BURNED 
Testimony of Roger T. Cole
Director, Division of Banking Supervision and Regulation
THE FEDERAL RESERVE BOARD
Mortgage markets
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
The Federal Reserve is concerned about recent developments in mortgage markets and has been closely monitoring the effects of these developments on the financial health of mortgage borrowers and lending institutions. Regarding safety and soundness of the banking system, less than half of subprime loans have been originated by federally regulated banking institutions. To date, the deterioration in housing credit has been focused on the relatively narrow market for subprime, adjustable-rate mortgages, which represent fewer than one out of ten outstanding mortgages. Borrower performance deterioration in the subprime market has been concentrated in loans made very recently, especially those originated in late 2005 and 2006, and problems in those loans started to become apparent in the data during the latter half of 2006.
* * * *
Supervisory Guidance
Over the past several years, the Federal Reserve has been monitoring these developments and has adjusted our supervisory activities accordingly. Banking supervisors expect our regulated institutions to be mindful of the risks posed by new and expanding business activities. The principles of sound lending have been with us for generations and most of the guidance we issue is to remind bankers what they should already be doing.
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"The principles of sound lending have been with us for generations"???? Of course they have. Our grandparents saved for years to accumulate cash for a 20%-30% down payment on their home purchase. The mortgage loan with often with the neighborhood bank who had very conservative guidelines. OF COURSE they had conservative loan guidelines - they loaned depositors money and held the mortgages in their portfolio. The bank had significant risk and they were cautious lenders.
Conclusions? Reading the full text of this testimony, one cannot help but get the feeling that the Board of Governors of the Federal Reserve have been working hard writing speeches and preparing for testimony before Congressional committees who provide "oversight" of the Federal Reserve.
In the 1950s, things changed with the introduction of Private Mortgage Insurance (PMI). Mortgages for homes with less than 20% down were financed with the 80/10/10 with 10% down. I remember it well. Our buyers would pay a full year of PMI insurance at settlement and then have a monthly mortgage payment including the payment on the 80% first trust mortgage and a payment for the 2nd trust loan with a PMI monthly payment of about .0062%. Then we got to the 80/15/5 with 5% down. Finally, in the 21st Century, we were offered the 80/20 with ZERO down. PMI insured the loans and everything was fine. Shucks, these conventional instruments were better than FHA, which still required 3% of the borrower's own money. Appraisals were easier and the conventional appraisers didn't notice nasty stuff like chipping and peeling paint on homes built prior to 1978 when lead based paint could still be present. During the hot real estate market in the years 2002-2006, you couldn't get an FHA loan accepted by a seller in many areas. That 100% conventional loan was great. Or, was it?
Conclusions? Reading the full text of this testimony, one cannot help but get the feeling that the Board of Governors of the Federal Reserve have been working hard writing speeches and preparing for testimony before Congressional committees who provide "oversight" of the Federal Reserve.
COMING SOON - CONGRESSIONAL OVERSIGHT
Courtesy: Homefinders.com
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Lenn, Let's hope they start to do and not to just speculate.