Is there a fix for the Home Mortgage System?
Los Angeles, CA (Vocus/PRWEB) April 08, 2011
In a recent article published at MortgageRefinance.com on April 4th 2011, entitled “Fixing the Home Mortgage System,” written by John B Landers, looks at a rarely discussed option for bringing strength and confidence back to the home mortgage system. The MortgageRefinance.com website provides news and informational articles on mortgage refinance loans, credit cards, and other financial products for consumers. The article discusses proposals and regulatory changes that profess to address problems that led to the near collapse of the financial system.
According to Mr. Landers, these solutions fail to tackle issues, such as lack of competition among mortgage lenders and an absence of trust on the part of investors in the mortgage-backed -securities market. The article addresses one possible fix, yet to receive much discussion -- covered mortgage bonds. Landers begins his piece discussing the lending rule that the proposed “Qualified Residential Mortgages” which would mandate homeowners make at least a 20% down payment for mortgage loans mortgage banks package and sell as mortgage-backed securities (MBS). QRM also requires verification of borrowers' income and other lending criteria. This requirement does not apply to over 95% of home mortgages, including those sold to Fannie and Freddie.
The article also looks at changing the lending rules to allow for the creation of competing mortgage lenders. They would fund and sell home mortgages using different methods, including funding the system with “covered mortgage bonds.” Mr. Landers gives credit to mortgage expert and Wharton School Professor Emeritus Jack M. Guttentag, and writes, “...a system similar to the model for real property financing in Denmark, would fix the shortcomings inherent in the current home mortgage system. He advocates new federally chartered companies called “Delta Mortgage Banks” (DMBs), which would fund home loans by issuing instruments called “covered bonds.”
As State Attorney Generals across the nation continue to meet with mortgage lenders in an attempt to work out a solution to the “foreclosure gate” debacle, it seems the covered mortgage bond solution flies under the radar of most Americans and policy-makers. Delta Mortgage Banks would provide needed competition against major banks for homeowners seeking mortgage loans and investors looking for low risk investments.
“Fixing the Home Mortgage System,” states traditional mortgage banks and Delta Mortgage Banks would operate on opposite edge of the home mortgage system. For example, DMBs would sell its loans one at a time; mortgage banks package multiple loans. Another variation between the two systems, DMBs would make a home mortgage loan and sell it simultaneously. In comparison, mortgage banks make mortgage loans and package them for sell later.
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