Federal regulators are currently investigating the policies of a large number of major U.S. Lenders - including New Century Financial Corporation and Fremont General Corporation - to determine whether impropriety was used in their business practices. National home loan policies are also being reviewed in an attempt to limit risks to both the borrower and the lending institution.
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bottom lineWhat you need to know - Conventional View
• New Century is the second largest U.S. subprime-mortgage lender, having written $33.9 billion in mortgages last year; they specialize in lending to individuals with weak, or subprime, credit.
• According to the
FDIC, Fremont failed to make proper allowances for its "large volume of poor quality loans," and operated with inadequate capital.
• Fannie Mae recently said it would stop buying loans involving borrowers with poor credit. Meanwhile, People's Choice Home Loan, Inc. joined more than twenty other sub-prime lending companies in filing for bankruptcy this week.
• Another type of financing which could cause problems in the housing sector is the
home equity loan, taken out by a homeowner against the net value of the property to finance home improvements or other consumer spending.
• U.S. homeowners who used 100% financing, and those who took out home equity loans against the value of their properties, could be the next to experience problems with the U.S.
housing market.
• "Piggyback loans could be the next skeleton to fall out of the
mortgage industry closet," said Howard Glaser, an independent mortgage analyst. "These 80-20 loans give the borrower the illusion of being able to afford more house than they really have the funds for."
• Home equity lines of credit, or HELOCs, grew from $151 billion in 2000 to $559 billion in 2005, according to the FDIC.
• "It just shows there was a lack of principles and standards," said analyst David Hendler. "There was no real major guardian of conservative standards anymore, and that’s a danger to the safety of the market."
What you need to know - Alternative View
Statements and opinions by Mike Adams• The housing market continues to exist as a huge speculative bubble, driven by fraudulent lending practices and easy Fed money policies. As I warned readers in 2006, a major housing correction looms over the U.S. economy. A housing "reality check" is due to hit hard.
Resources you need to know
• The Daily Reckoning:
http://www.dailyreckoning.comBottom line
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A federal probe is investing home loan policies to determine the risk presented to both lenders and borrowers.
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