Blame Flies In Risky Mortgage Meltdown

Pressure Rises For Congress To Act As More Homeowners Are Unable To Meet Payments

(CBS/AP)  Charges of blame were flying Thursday for the meltdown of the high-risk mortgage market as pressure mounted for Congress to do something about rising foreclosures among homeowners unable to meet high payments.

Under fire from lawmakers, federal regulators said they lacked full authority to prevent the crisis spawned during the soaring housing boom of 2003-2005.

Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, laid out what he called a "chronology of regulatory neglect" as banks and other lenders loosened their standards for making riskier mortgage loans during the boom.

"Our nation's financial regulators were supposed to be the cops on the beat, protecting hardworking Americans from unscrupulous financial actors," Dodd said. "Yet they were spectators for far too long."

More than 2 million homeowners could lose their houses in the subprime mortgage meltdown, reports CBS News correspondent Anthony Mason. About 300,000 are already in foreclosure and more than 50 lenders are in serious trouble or have gone belly up.

Many mortgage lenders haven't come under the Federal Reserve's supervision because their primary regulators are state banking authorities. However, Dodd and others maintain, the central bank does have authority under federal law to exert jurisdiction over those companies and broaden lending regulations to cover them.

Some of the biggest companies in the so-called subprime mortgage market were called to account before the banking panel.

The distress in subprime mortgages — higher-priced home loans for people with tarnished credit or low incomes who are considered greater risks — has roiled financial markets and stoked anxiety that it could spill over into the broader economy.

Risky lending practices became so lax that in the past two years 40 percent of first-time home buyers put no money down. Now delinquency rates are soaring, adds Mason.

Company executives said they had tightened their lending practices and eliminated some higher-risk types of mortgages. They urged Congress not to rush in and overreact.

"We take the situation very seriously and we're taking strong steps" to correct problems, testified Brendan McDonagh, the chief executive of HSBC Finance Corp.

With millions of homeowners said to be at risk of losing their homes in coming years, the issue took on an increasingly political complexion Thursday. While a number of politicians, consumer advocates and community activists are clamoring for Congress to act, industry interests and some Republican lawmakers are warning that new restrictions on mortgage lending could choke off credit to those who most need it.

Away from the hearing, Democratic presidential contender Sen. Barack Obama called on Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson to convene a "homeownership preservation summit" bringing together major players for the purpose of stemming the foreclosure tide.

"We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes," the Illinois Democrat said in a letter to Bernanke and Paulson.

Dodd, who also is seeking the party's presidential nomination, warned at the hearing that some 2.2 million homeowners could lose their homes in the next few years.

Acknowledged Roger Cole, head of the Federal Reserve's banking supervision division, "I will say that given what we know now, yes, we could have done more sooner."

Under pointed questioning from Dodd, Cole promised to put in motion a process at the central bank that could lead to a broadening of federal rules governing mortgage lending standards.

A patchwork of federal and state regulatory agencies hold jurisdiction over financial companies, putting many subprime mortgage lenders outside of stringent regulation, the regulators said.

Earlier this month, the Fed and the other four federal agencies that regulate banks, thrifts and credit unions called on lenders to exercise caution in making subprime mortgage loans and strictly evaluate borrowers' ability to repay them. The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans.

Dodd said he wanted to know why it took the regulators more than three years to act "despite evidence that they themselves identified problems in the subprime market."

[lestb35]

Some people are better off renting. Why work an 80 plus hour week (couple) just to pay a mortgage not to mention sky high property taxes increasing annually. There are other better ways to enjoy life and the American dream.

[hedonist3]

The major reason why people default on credit cards is because high interest rates soon make the balance go way past the orignal amount spent.

...; let everyone pay the exact same interest rates. There is a class system going on in America, those with perfect credit and those without. Those with perfect credit can buy things at less interest than those with less than perfect. The less than perfect are expected to pay sometimes 4 to 5 times the interest.

Posted by httpwwwnews at 02:11 PM : Mar 24, 2007

First, no - people over-buying is the major reason people default on credit cards. Americans are consumed with instant gratification.

Further, why should I, with an 800+ credit rating earned by hard work, budgeting, financial diligence and a nose-to-the-grindstone work ethic, have to pay the same interest rate as those who overextend themselves and haven't the foggiest idea of living within their means?!?

If you can't afford it, do without it. If you want it anyway, education or a mastering a craft can help remedy that.

[hedonist3]

Yeah, that's what I'm going to do -- rely on the lenders and realtors to act in my best interest. Bahooey! I alone am responsible for knowing what I can afford. People, educate yourselves in the art of budgeting!! Step back from the tube, stay home from the bar - whatever - and educate yourselves!

[mbievtea]

HERE'S WHAT I THINK ... A LOT OF PEOPLE THINK THEY CAN, SHOULD AND HAVE A "RIGHT" TO GET SOMETHING FOR NOTHING. THEY EXPECT TO BUY HOUSES, CARS, PLASMA TV'S, CELL PHONES WITH ALL THE "BELLS AND WHISTLES", AND THEN WONDER WHY THEY DON'T HAVE ANY MONEY IN THE BANK WHEN SOMETHING HAPPENS. IT'S THE SAME HERE ... THEY BOUGHT HOUSES WITH NO MONEY WHEN -- IN FACT -- THEY HAD NO MONEY AND WHEN THEY CONTINUED TO SPEND MONEY IT ALL FINALLY CAUGHT-UP WITH THEM WHEN THE BILLS SOMEHOW STARTED TO PILE-UP!!!

[figuy30]

the troubled lender is at fault for not fully investigating a potential customer and the application submitted for his loan. having been in subprime lending on the retail side of business i have actually seen finance managers knowingly falsify a customers credit application. not making enough money? high debt ratio? give him a raise. too short time on the job? short time at current residence? give him some stability. risky job title? give him a better job title. sellers and lenders know how to do their jobs - they just don't do them. this whole situation is nothing new. look at the financial problems facing the auto industry. some people actually do fall on hard times and this accounts for a small number of foreclosures and repossessions, but the vast majority is reflected in the incompetence, greed, and apathy of sellers and lenders. any government attention should be directed at random inspection of the lenders loan portfolios and aggressive action taken for blatent disregard for federal lending laws and breach of contract between sellers and lenders. the taxpayers cannot be expected to bail out companies unwilling to take responsibility for their improper agendas.

[ghosttownsky]

If as a homeowner I saw that there was no way out and I was progressively getting behind what would I do? The smart thing to do would be to put all my money into other bills or to save up for getting into a rental for as long as I could stay in the house. On the other hand, if the lender would work with me a little to bring my payments back towards where they had been. Then I would keep paying payments

[ghosttownsky]

If as a homeowner I saw that there was no way out and I was progressively getting behind what would I do? The smart thing to do would be to put all my money into other bills or to save up for getting into a rental for as long as I could stay in the house. On the other hand, if the lender would work with me a little to bring my payments back towards where they had been. Then I would keep paying payments

[bobnjersey]

renrivers:

you clearly have a robust understanding of the mechanics. i appreciate your response ... and your self restraint :-)

i read your whole thread and thru it all was the question why. why would the fed lower rates to unprecedented levels and why would the lenders engage w/ risky borrowers. it seems too easy to just say that they saw the opportunity for profits by allowing for what they knew would be a high percentage of defaults. if their margins are higher for defaults ... than why not do this for all income types and why wait until 2000?

no need to limit your explanation. my inquiries are not driven by partisan motives ... only fundamental curiosity.

[ghosttownsky]

This appears to be somewhat a self-fueling problem. The people with mortgages that are most at risk are also the ones that have to pay the highest interest rates due to the risk factor of their loan. The lenders who have been somewhat greedy in making these loans are now suffering along with those they were socking it to. The only thing that would stop this huge problem is for interest rates to go down significantly. The Feds can help on this but the lenders may save themselves losses by at least temporally lowering the mortgage rates they charge.

[Renegade.Rivers]

Another thing too, while I am at it. Many of you just take it that anyone that criticizes the banking system and corporations are liberals. You sling that word around like you know what you are talking about. I have said many times in these forums that I am neither a Democrat or a Republican. I am an independent voter, and have not missed an election in 35 years. I have voted for both Republicans and Democrats during those 35 years. I will as quickly condemn one side as the other, they all are the same to me. I just call an ace, and ace. So get off you name slinging high horse, and come back down to reality, most all of them are crooks from the get go.