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Mortgage sub-prime crisis examined in new report

National Mortgage Professional
Jan 27, 2008

Mortgage sub-prime crisis examined in new reportMortgagePress.comCompetitive Enterprise Institute, bankruptcy, foreclosure, Mortgage Reform and Anti-Predatory Lending Act of 2007 Congress could exacerbate problem As Congress scrambles to fix the sub-prime crisis that's plunged mortgage lenders into bankruptcy and homeowners into trouble, a new report by the Competitive Enterprise Institute (CEI) states that Americans would be better off if Congress did not try applying a legislative solution. The various proposals in Congress are "unlikely to provide relief to homeowners in trouble and may even make things worse," explained CEI analysts Eli Lehrer and John Berlau in "A Non-Prescription for Confronting the Sub-Prime Crisis." "To date, the crisis has been relatively minor--a small decline in homeownership combined with a small uptick in foreclosures, with well-off investors absorbing the bulk of the damage," said Lehrer and Berlau. "Doing too much could turn a minor crisis into a major one affecting ordinary Americans." The report came in advance of a likely vote in the House of Representatives on the Mortgage Reform and Anti-Predatory Lending Act of 2007 (HR 3915), which would mandate that lenders only offer loans that the government determines have the "best terms" and "net tangible benefits" for borrowers. Lehrer and Berlau blasted the paternalism of the bill's approach and pointed out it could worsen the housing crisis by making it harder to get home loans. "This and similar proposals would go beyond improved disclosure to essentially outlawing certain types of loans ... limiting the choices of both lenders and borrowers," the authors explained. "A mandated 'cheaper' loan that requires larger cash payments at one time may hinder borrowers' abilities to achieve other financial goals, such as sending a child to college." Arguing against both overregulation and bailouts from agencies, such as the Federal Housing Administration, the authors concluded that these interventions would worsen the market's ability to correct the problem by re-pricing risk. "The failure of hedge funds and mortgage firms sends a clear signal indicating bad business practices," the authors explained. But, many of the proposed solutions would likely both "increase default rates and "make it impossible for some people to afford homes." For more information, visit
Jan 27, 2008
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