Saturday, July 25, 2009

Fed unveils borrower protection rules.

After two years of mortgage catastrophes that brought on Great Depression II, the Fed is proposing a few little tweaks to mortgage policy. Just hand the borrowers a slip of paper with a few numbers on it before they sign the mortgage. The paper, if read, would warn about negative amortization (payments aren't big enough to reduce the outstanding balance)and balloon notes, (incredible amounts of money still owned the bank when the mortgage runs out). The lender is supposed to "provide clearer information" on how much the bank might jack up monthly payments on Adjustable Rate Mortgages (ARMs).
And they want to restrict kickbacks to mortgage brokers for steering marks into higher rate mortgages.
Oh yes, they want to revise how the interest rate is computed.
This weak tea is supposed to protect us from Great Depression III, coming to an economy near you.

How about standardizing the way interest is computed? My little local bank has a sign in their lobby listing two different interest rates for every kind of loan they would make. I asked about that once, and received a complicated explanation as to what the difference was. How can I shop for the lowest rate when each lender figures the rate a different way? Having a standard way of computing interest isn't a restriction on the right to make money.
Then there is the title insurance scam. The bank or someone gets a free few thousand dollars to guarantee that no shyster lawyer will turn up and claim ownership of the property because of an uncrossed T or undotted I in the title. That ought to be outlawed.
They ought to outlaw "points", another few thousand dollars claimed by the bank at closing for no particular reason. Banks charge "points" because they can.
They ought to outlaw mortgage brokerage completely. Everyone knows that you get mortgages from banks. Home buyers can go to the bank without paying a mortgage broker a fat fee for getting them in the bank door.
They ought to outlaw the termite inspection scam, the radon inspection and mitigation scam, the smoke alarm scam, the urethane insulation scam, and the lead paint scam. The house is sold as is. Should the new owner desire these various improvements, he is free to pay for them. The state should not force the seller to make these expensive and unnecessary improvements that the seller doesn't care about.

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