In the second quarter of 2007 many adjustable rate mortgages will reset to higher rates and higher house payments. Many lenders are working diligently to help home owners. But what happens to a mortgage that is known to put the buyer upside down in the home? (By upside down I mean they owe more than the home is worth.) Is it fraud if mortgage backed securities are involved? What if the borrower financed 80 percent, plus the down payment? Add a home equity loan to that and what happens? Scrutiny of these loans is only months away!
Federal and state banking regulators said they would step up their scrutiny of lenders that make home loans to people with shaky credit, focusing on companies that operate outside federal banking oversight. The pilot program announced by the Federal Reserve, two other federal agencies and state banking officials is scheduled to start in the fourth quarter and affect about 12 lenders. It will be designed to examine firms that account for the majority of subprime loans, a category that has experienced a surge of defaults in recent months.
With looming scrutiny of subprime loans – although way too late in this writer’s opinion – let’s see how refinancing plays out. Will some loans need a new appraisal? Can we trust the appraisers? Or would a new appraisal be more information than some lenders want to know? Answers should become clear by early 2008. Without a doubt some lenders will be singing the blues and Mortgage Blues will be right here to report the news.