State must regulate brokers of sub prime mortgages

12 Jan State must regulate brokers of sub prime mortgages

For every subprime loan, made to a borrower who could never realistically hope to repay the debt, there is a mortgage broker with a license from the state. The states must investigate how supposed professionals urged on their clients ruinous loans that have lead to the foreclosure explosion.

As we watch waves of foreclosures, investigation of Wall Street institutions, governmental programs promising homeowner relief, we must not forget the brokers who engineered these loans. I have seen loans where a fully amortized payment on the loan equaled my client’s gross monthly income and families paying more than 3/4 of their take home pay just to pay the negatively amortized payment.

Routinely, my clients report that, when they questioned how they were going to make payments on a $600,000 loan when the introductory rate expired, they were each and every one told by the loan broker “not to worry: we’ll refinance you into a better loan” before the real cost of money hits.

The carrot that the broker held out, of course, was that rising home values would somehow salve the economic unreality. No one apparently asked, nor did the broker offer, what it took to repay $600,000 over 30 years. The monthly payment is the monthly payment, whether the underlying house is worth $600,000 or has appreciated to $900,000.

From a lawyer’s perspective, suit against the individual broker who profited selling a loan destined to trigger a foreclosure is too little, too late for the victimized borrower. The broker is often an individual who has a limited net worth and has exploited a number of borrowers. Not much economic justice available there.

So, at minimum, each state who licensed real estate agents and loan brokers must examine their standards for licensure and pull the licenses of those who facilitated the mortgage mess. Either these brokers had insufficient training to look at the borrower’s income and know the loan was impossible, or, they had insufficient moral character to walk away from the commission on a deal that would cost their client their home.

Either way, these brokers do not belong in the real estate business. The states should lead the way in cleaning house.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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