The mortgage industry has been self regulating and making guidelines for SubPrime lending stricter for at least the past 6 months. Now with the pending "implosion" of the subprime market, congress is looking at other ways to further regulate the lending practices and guidelines for "risky, higher-interest home loans made to people with blemished credit records"
Tougher rules eyed for high-risk home loans Delaware News Journal
The article above also has some interesting data for the default rates on loans held by various types of lenders including Prime loans, SubPirme loans, FHA, and VA. SURPRISE! While the news is concentrating on the subprime market, and congress is looking to play the blame game thinking it will help to correct the current market issues, no one is paying any attention to the default of FHA LOANS, the higest default rate. Total loans with any late payments is high at 12.87% for SubPrime loans, it is even higher at 13.54% for FHA loans. These are loans that are already regulated and INSURED by the government. So when lenders take losses on these loans the government covers those loses..... I mean tax payers cover these losses.
So why is the concentration on the SubPrime market?
Because while the number of people with late payments (30, 60 or 90 days late) is higher for FHA the foreclosure rate of 2.19% is less than half of the foreclosure rate of SubPrime loans 4.53%. This is due largely to the fact that FHA was able to negotiate various workouts and estimates for 75,000 borrowers or abut 60% of the defaults. Were these borrowers in Subprime loans they would not have had similar representation negotiating for them.
Mortgage woes may help revive FHA Wall Street Journal