With all of the positive media stories about the new government plans to address the housing crisis and work with homeowners to modify predatory defaulted mortgage loans, one would think that the government could do modification programs better than borrowers and lenders working together. Unfortunately, the government has proven even more ineffective than the banks.
One of the scapegoats of the economic crisis has been the subprime mortgage lending industry, which supposedly made thousands of predatory mortgages to unsuspecting borrowers in an absence of regulation and government oversight. Now, after the failure of the markets has been uncovered, government has to step in and solve the problem.
But the government regulators were aware of the subprime market even before the real estate boom turned into the housing bubble. In 2001, the Federal Deposit Insurance Commission (FDIC) seized Superior Bank, FSB, in Hinsdale, Illinois. At the time, the failed bank was a subprime mortgage lender, originating loans with high interest rates to unqualified borrowers.
Instead of closing down the bank's subprime origination division, the FDIC kept it open and operated it. Usually when the FDIC seizes a bank, it will shut down the operations completely, especially if they are of such dubious nature as a number of subprime loans were. But the regulators kept the bank open and made subprime mortgages to new consumers.
Moreover, this was not just a temporary practice to fund the final loans Superior was working on before being seized -- the FDIC funded $500 million in close to 6,700 new subprime loans during the period of time it was operating the failed bank. So the government regulators played a direct role in inflating the housing bubble and providing predatory loans.
What if the government made better, more compassionate, more hopeful subprime loans than the average subprime lender? Then the loans may be understandable and prove that the government has the compassion and business sense to generate positive results from what has been labeled a greedy business practice.
However, this is not what happened. The loans that the failed bank made while under FDIC control were just as "predatory" as many other subprime loans, and were plagued with the same problems. Inflated appraisals, lack of income verification of applicants, and loans that should never have been made were just as common with the government loans as private mortgage lenders.
The government either did not see how subprime mortgages were exacerbating the housing boom, or the regulators did recognize the problem but greedily decided to take advantage of borrowers in order to boost the government bank's profits. In either case, can we really trust these same regulators to fix a problem they did not see or saw but got greedy about?
Now we are expected to put faith in the government's programs to help homeowners in foreclosure by supporting loan modifications. Are some of the same borrowers who received subprime loans from the FDIC eligible for this new program? Unfortunately, with the government relying on inflated home values and failing to verify income, probably not.
Most of the programs created so far to solve the housing crisis have been utter disasters. The FHA Hope for Homeowners Program has helped one single family, despite having a budget over $300 billion. But each failed plan generates proposals for more plans that are remarkably similar to each other.
From the very peak of the federal government at the Federal Reserve, down to the financial regulators at the FDIC, the subprime mortgage market was fueled by artificially low interest rates and shady loans made directly by the government. Now homeowners are supposed to trust the very same people what pumped up the bubble and collapsed it to stop foreclosures and punish greedy lenders?
Author Resource:-
Nick writes for the ForeclosureFish website and blog, which provide foreclosure help and advice to homeowners attempting to save their homes. The site describes numerous methods to prevent foreclosure, including bankruptcy, foreclosure loans, stopping a sheriff sale, and many others. Visit the site today to read more about stopping foreclosure while there is still time: http://www.foreclosurefish.com
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