Understanding of subprime lending and impact on current graduate students

Introduction

In a manner similar to many earlier economic crises, sub prime lending bust begins decades before anyone actually knows. With the Community Reinvestment Act of 1977, banks expanded their trust in the area they operated. As a result, many lenders were attracted to low-income borrowers. Later in 1986, the federal government began allowing taxpayers to deduct interest paid to mortgages. This effect was a benefit to the refinancing market. In addition to the benefits associated with the fairness of buildings, homeowners now have access to tax cuts, such as paying fixed monthly payments instead of rising rents. This, in spite of the way borrowers receive loans in the future, often directly led to a steady increase in homeownership. Dangerous loans were totally made from small country towns to the vicinity of the city center, to rich suburbs.

From 1986 to the mid-90's, mortgage securities began to catch the attention of Wall Street. At that time the focus shifted from investing in regular "prime" mortgages to a more risky "subprime" loan. The risk of subprime loan default was higher than that of prime loans, but it was still more attractive to investors. The volatility of the subprime market was very low compared to the stock market. This low interest rate made subprime loans indispensable for mutual fund companies, ordinary banks, pension funds and insurance companies.

There are several bubbles in the financial market. The market is only human emotions, sometimes investors become excessively hot as "next big thing". Likewise, subprime loan investors started to invest more money to the industry with the initial profit as an indicator of future crash. By the time the house price peaked (2004 to 2006), more than a quarter of all loans were high-priced subprime loans. In 1994 $ 3.5 billion was invested in the subprime mortgage. Of which 11 billion dollars was purchased on Wall Street. This balloon received a $ 332 billion loan in 2006. $ 23 billion Among its excellent subprime loans, Wall Street investors of that year bought it. This aggressive loan and simultaneous demand for home owners has ruled that many borrowers are enjoying a house that they can not afford.

Subprime Rending: Wolf clothing shoes?

The key to understanding the current problem faced by the mortgage lending industry is the distinction between "subprime" loans and unapproved "looting" loans. A subprime loan, also called a "second chance" loan, is suitable for borrowers who are "less than perfect credit", credit problems or low eligibility for traditional mortgage loans. In many cases, it is the only option for homeowners owners of borrowers. Loans are usually short-lived, generally ranging from two to four years. The loan has high interest rates and fees. This is the standard of approved credit line for high-risk borrowers. But most importantly, these loans are the fact that the purpose of the borrower is to give the opportunity to repay the debt and liquidate credit. At the end of the loan period, borrowers can qualify or refinance loans with lower interest rates and risks from major banks.

Pronunciation lending involves involving fraud and fraud by telling the borrower accidentally by communicating information and manipulating it. This often involves pressing aggressive sales strategies to naive consumers and exploiting the lack of understanding. The looters do not mind the borrowers. Repayment ability. This occurs in both the prime and subprime markets, but because of the large amount of surveillance provided by prime lenders (usually banks and credit unions), the latter will thrive. Speculative lenders generally use abusive loan practices involving one or more of the following problems:

1. Loans are structured to markedly disproportionate net harm to borrowers,

2. Seek harmful rent,

3. Loan fraud or misconduct,

4. Lack of transparency of loans that are not fraud

Loans requiring borrowers to abandon important legal remedies.

The coalition of responsible loan guesses estimated that expenditure loans alone would cost up US borrowers of more than US $ 9 billion each year. A leading indicator of an increase in predatory lending is an unprecedented increase in foreclosures within the United States. While interest rates fell from 1990 to 1998, the housing foreclosure rate rose sharply to 384%.

Why differentiation? Firstly, many consumer claims and hard-line opponents of sub-prime financing argue that there is no distinction. Unfortunately, it blurred the line between the lender who provides the second borrower with the requisite borrower and the sole purpose lender who squeezes the blood from the proverbial stone. Subprime loan create Home owner, looting loan Exclude Those. Advance loans are most common in the subprime market, Overall Lending spectrum. This affects intermediate classes and superclasses in the same destructive way as low classes. The only requirement of a looted lender is that the victim needs two things: a financial problem and a lot of equity in the family.

A perfect example of predatory lending is in the story of Ken and Pat Leahy living in the town of Chicago in the outskirts of Glenview, Illinois. This couple is currently fighting the project which is doing "mortgage relief" project. This is another term of one of numerous looting loan fraud. The couple lived in the same house for 47 years and refunded many times to build a house and send their daughter to the university (many Americans do). In March 2002, Ken lost her job. After paying a $ 1,700 mortgage from a lawyer or loan broker and struggling for a while to protect numerous jurisdictions, the couple decided to meet Harrison & Chase. The business advertised himself as a "foreclosure mitigation company" and promised that the service "will be provided free of charge". A couple sits and met with a company agent Hantzkoco who was appointed counsel in the lawsuit, he said " [s] To another person [they] The couple hesitated and signed two forms, one that Harrison and Chase allowed to negotiate on behalf of, and one that was an exclusive contract to help Leahys sell their houses.

Leahys did not receive either form of copy. After the meeting with the couple failed, Mr. Fox President of Harrison & Chase contacted the couple and proposed a new idea. Foxx told them that Ken could find their new jobs, improve their borrowing ability and put their houses in "protected trusts" that protect them from creditors while refinancing. The trust had the power to sell his house, but Leahys was convinced there was the first opportunity to buy it.

This couple has not tried to give up the title to his house nearly 50 years, but unfortunately that was it. They learned that they sold their homes at $ 230,000 in an area where they were able to exceed $ 500,000 for the same property. Leahys left at only 10,361 dollars, after they sold their houses to Harrison & Chase and met the mortgage at $ 230,000 who paid the property tax. Adding an insult to injury is the fact that couples pay 2,500 dollars a month to borrow their home from "rescuers" and agree to pay nearly $ 300,000 to buy their beloved house did. Unfortunately, due to another series of unconscious hospital visits, Leahys can not afford it.

Leahys is not alone either. Looters have used emotions and human attachments to real estate throughout the United States using "sales and leaseback" schemes like Harrison & Chase. The needs of all potential victims are exactly the same as what Leahys had: Financial problems and many equities in the home. Borrowers must not make the same mistakes as Leahys until these operations are exploited by an increase in the monitoring effect of housing loan busts. Both old and new homeowners who have suffered financial difficulties must eliminate frustration and educate themselves. It is most important to seek independent legal and financial advice and there are many private and public stores to do so.

Capital raising crime

In addition to emphasizing the predatory loan that occurred, the bust in the real estate market attracted attention to potential criminal acts in the real estate market. For example, New York State Prosecutor General Andrew Cuomo filed a lawsuit against the real estate appraisal division of Fortune 500 company First American Corporation. Cuomo Attorney General believes that this practice is "widespread" and is a major cause of crash in the market.

A lawsuit against the First American Award that the company raised the house value to approve more loans. The mortgage company was obviously putting pressure on expert witnesses to do so. Such a convention makes it very easy for borrowers to overpay rent or borrow the current house too much. Therefore, when housing prices begin to decline, borrowers can not refinance if his home has a much lower value than the value he thought at the time of acquisition.

Absurd than artificial inflation of appraisal price was the fact that the entire industry was born based on helping borrowers fraudulently borrowing borrowers. At the zenith of the subprime loan market, the creditworthiness is low, the monthly income is insufficient, even in the history of bankruptcy, the borrower could not obtain the mortgage. For example, an unqualified borrower would need to visit http://www.VerifyEmployment.net if you want to qualify for a loan that you believe is likely to be visited. A small California company will help the unqualified borrower receive a loan by listing him as an "independent contractor" for a fee of $ 55. In doing so, the company provided a remuneration stub that "proved" that the borrower 's income was much higher than it actually was. For only $ 25.00, the company will also provide a phone call to the lender where they will give enthusiastic reference to the borrowers. Another website - http://www.FakeNameGenerator.com - is interested in fake names, addresses, credit card numbers, social security numbers, and basically what you need to secure home loans We will provide it to the borrower.

Recently, mortgage lending fraud in Pittsburgh has been picked up by a nationwide news wire. US lawyer Mary Beth Buchanan announced on April 10, 2008 that two mortgage brokers complained of mortgage cheating in federal court. Two brokers, Aaron Thompson and Randy Carretta, operated People 's Home Mortgage. The purpose of this project was "to assist the borrower to raise funds to purchase a house", but the duo submitted a borrower's application including a misrepresentation of the patent on the borrower's financial condition instead. This application included evaluation of real estate created by an unlicensed expert witness, and a forged employment document. The ruling is scheduled for September 2009, both of which are facing the possibility of a 20-year prison sentence with a fine of $ 250,000. However, the two monasteries are just a drop in the growing pond, not the only thing due to a subprime mortgage crash.

Laissez-Faire's loan supervision and standards provided a way for "cheating for profit". In some cases in New York, the FBI claims 26 people for fraud. It is said that confidentiality obligors used the stolen identity, invented buyers and expanded the evaluation in order to acquire assets exceeding $ 200 million. In Ohio, almost half of all mortgages handled by a single broker were not making a single payment. Unfortunately, many other fraudulent borrowers and lenders can not collect because money is coming out of the door.

For many investors, the growth and rapid collapse of the lending industry reminds us of the crisis of savings and lending in the early 1990s. This crisis ended with the federal government squeezing the market with $ 150 billion as a remedy and was convicted of a few high scores fraud. But now, the big loser in terms of substantial dollar was a hedge fund. These funds are theoretically confined to wealthy investors, but small businesses and borrowers can quickly feel the famous "trickling" effect. The current administration is considering its available options and will probably put pressure on lenders, borrowers facing foreclosures, or both. Meanwhile, a class action is started and will not end soon.

Tackle the problem in Congress

Representatives of Brad Miller (D-NC), Mel Wat (D-NC) and Bernie Frank (D-MA) introduced "Housing Loan Reform and Anti-Predictive Lending Act" on October 22, 2007 . The purpose of this law is to "reform the mortgage practices, account for such practices, establish licensing and registration requirements for mortgage originators, provide specific standards for consumer mortgage loans, for other purposes To summarize, the purpose of the law is to place a major burden on the mortgage lenders, while obscuringly ignoring the irresponsibility of the borrowers.

Title Ⅱ of this law is entitled "Minimum standard for mortgage loans". Under this title, mortgage lenders can not do mortgage without making a "reasonable and sincere" decision that borrowers have "reasonable ability to repay" loans. The rationale for such decisions must be borrower credit history, current income, expected income, current debt, debt income ratio, employment status, and "other resources". There are estimates that can be refuted against mortgage lenders under section 203 of the law.

If you read section 201 (Repayment Capability) and 204 (Debt) together, the burden on the lender by the law is much clearer. If the mortgage lender does not meet the "reasonable and honest decision" criteria when deciding to borrow the borrower's money and the borrower is unable to repay, the borrower will respond to the obligee in accordance with section 204 of the law You can file a civil lawsuit. This civil action involves the cancellation of the loan, the cost borrowed by the borrower as a result of the breach, the expenses relating to withdrawal of the loan, attorney's fee . The gradual loan process according to this law will be as follows.

1. Potential borrower application of mortgage.

2. Mortgage lenders agree to lend money based on the terms that both parties agree on based on the information provided by the potential counselor.

3. The Borrower recognizes that payment can not be continued based on agreed terms.

4. The borrower shall raise a civil action against the lender to invalidate the lender, recover the expenses required for filing the case, and collect the attorneys fee.

5. To succeed in defense, the lender must overcome an essentially refutable estimate of guilt.

Please note that the bill does not provide the premise that the borrower must overcome. Anywhere in this proposed bill, the borrower needs to indicate the reason for accessibility to pay. This law does not even require borrowers to show justifiable grounds for fulfilling their financial obligations.

The basic effect of these provisions would have allowed the lender to simply appeal the lender to the lender, as the lender should not lend them money. The potential effect of such legislation would be to limit loans to points where mortgage lenders would have avoided lending to all but the top tier of the borrowers. This will reduce home ownership as the number of lenders trying to borrow even ordinary risk borrowers decreases sharply.

A common problem that has not been substantially affected by the collapse of subprime lending has become the foreground of the political landscape that it should "rescue" homeowners facing foreclosures. In the primary Democratic party on April 22, 2008, I saw a campaign announcement until the resident of Pennsylvania reached plaster. On March 7, 2008, Senator Kit Bond (R - MO) introduced the "Security Framework for Foreclosure and Education" (SAFE Act). The purpose of the SAFE Act is to support families and areas facing home foreclosures and to deal with the subprime mortgage crisis. Senator John Cornryn (R - TX) and many other senators are on board.

The SAFE Act provides an example of the stage when Congress is trying to bridge the gap between the two main views on this issue. In this plan, we are offering more than $ 10 billion to refinance subprime loans that are being pressured or seized. We also provide tax deductions of $ 15,000 over three years to purchase "qualified individual residence". "Qualified individual residential area" is defined as "qualified detached house purchased as purchaser's primary residence" by the SAFE Act.

Other new regulations proposed by the SAFE method To request A borrower who is considering ARM (Adjustable Rate Mortgage) taught about the maturity date, prepayment fine, external interest rate, monthly payment when the interest rate rises. These measures are inherently aggressive. The SAFE method in case of passing is not looking back on the person who is disposed of or who currently deals with foreclosure. However, the disclosure requirements put a heavy burden on mortgage lenders and notify potential borrowers about almost all financial aspects of purchasing a house.

Increases in proposed borrower education and disclosure requirements will not end after purchase. Article 327 of the SAFE Act provides the 106th (c) (4) of the Residential Urban Development Act of 1968, which currently provides financial counseling for home owners who can not meet the current mortgage debt due to employment Revise the section. This change will provide counseling to those who can not pay due to divorce, death, unexpected or significant increase in medical expenses, unexpected serious damage, and / or a substantial increase in real estate tax. Counseling can only be used for first-time home buyers, and will continue to include counseling on financial management, available community resources and social services, and vocational training / placement.

In order to encourage the increase in home owners due to foreclosure crisis, the SAFE law will create a pilot program for borrowers with insufficient credit history to purchase homes. Given that bad creditors are mainly focused on looters, we needed to deal with this loan demographics. The pilot program uses "alternative credit ratings" to those with insufficient creditworthiness history It is an opportunity to buy a house without waiting a long time to build a good credit history. The new credit rating system considers information such as rent payments, utility payments, and insurance payment history. It was easier to claim that mortgage and utility payment information is more useful to mortgage lenders than normal credit rating information.

There is no word from the Democratic Party of Congress on when this proposed bill could potentially be a vote. The new disclosure proposed by Senator Bond is not absurd. They will create new standards for lenders, emphasizing the importance of financial education for borrowers. The requirement does not bind irresponsible borrowers by the obligations they created at their will by concluding monetary contracts they can not complain about. Both thinking of those who believe that too few lenders and those who believe that borrowers should be more diligent are addressed in a way that encourages self-education and diligent disclosure.

Balance personal responsibility and market concerns

The sudden change in homeownership and the overwhelming seizure of the US are weakening and the crisis has not ended yet. It explains the effect of the Federal Reserve Board's recent interest rate cuts since 2003. Housing prices in the US fell for the first time recently, probably because the possibility of the Great Depression is the highest. First American CoreLogic 's March 2007 survey shows that the market is expected to have an additional 1.1 million seizure by 2013. Congressmen now face a tough balanced act between protecting vulnerable borrowers and allowing borrowers to bear the responsibilities associated with depriving them of the mortgage they can not buy ing.

The Bush administration relaxed some loaning rules in 2007 and was able to help 80,000 borrowers refinance to avoid higher interest rates. A bill was introduced to reform the practices of subprime loans and to exclude more predatory lenders for more specific subjects. The bill expands HOEPA (Housing Ownership and Stock Protection Act) to cover more loans, expand protection of HOEPA loans, clarify state law on mortgage brokerage obligations, clarify obligation of trust for borrowers Emphasis and a new section on the protection of subprime loans.

In general, those who oppose government interventions think that the lending industry will suffer from short-term distress, but the economy will be more healthy. We also believe that reversing the personal responsibility of investment by introducing federal remedies will become a "subsidy for risky behavior" in the market, "the government will pay a bad lender" In other words, encourage future dangerous margin trading.

At a responsible lending center, a non-profit research group, initially invested in sub-prime loans was invested huge amounts of money, investors are calling for relief measures to "feel pain" in a free market. At first glance, investor relief does not seem intuitive. It makes no sense - Should investors be covered by the government when they lose money unless the government is forced to hand over funds when the government believes they made it overly? Relieving those engaged in dangerous actions is likely to encourage such actions in the future.

Companies that support relief measures claim that some industries are "too big to fail". This discussion was used for the first time about ten years ago when the Federal Reserve intervened for a strong hedge fund "long-term credit management." Currently, about 100 subprime lenders have closed their doors since the first bust and the ripple effect is only beginning to be felt in other areas of the US economy. The financial system is interconnected by slice and dice of mortgage loans between investment funds, where Ohio state homeowners default, Hawaiian retirees may hit their portfolio. No matter how it is determined, Pennsylvania will acquire home ownership over the next few years.

Application for college students

The result of the confusion between subprime mortgage and plunder is obvious. Subprime loans are completely feared and avoided by all borrowers, but many of them will benefit greatly from such a situation. Housing prices have declined, but those who can use low prices never do that. Potential borrowers decided to place after hearing about foreclosure, horrible adjustable interest rates, and losing home. The sign of the era is that apartment sales have been stagnating recently because apartment contributors have chosen to abandon the way of capital that is beneficial for property. According to the National Association of Real Estate, there are about 1 million such people declaring purchase of real estate.

According to a recent Congress survey, the Joint Economic Committee predicts that by the end of 2009, about 17% of Pennsylvania's subprime loans could fail. According to the survey, 29% of the first mortgage in Beaver County and Armstrong County, 26% in Washington County, 25% in Allegheny County and Westmoreland County were all subprime. In Philadelphia County, 46% of all mortgage loans were subprime.

As far as Pittsburgh is concerned, the people in the area just increased the real estate value by 11% between 2001 and 2006. This is a lower rate of increase as I am more aware that household values ​​rose more than 50% compared to Philadelphia homeowners. Residents of Allegheny County also experienced about 400 foreclosures in February 2008. This is the highest in February over 20 years. However, as the Pittsburgh Market escaped the massive foreclosure that Pittsburgh market had experienced elsewhere, real estate agents in this area do not believe that tenants should not be frustrated. Instead, people looking for houses over the next few years will be able to find better deals and shopping opportunities for local real estate agents. It is regrettable that the front owner of the house arrived, but the young family buyer at the beginning probably can make ordinary lemonade perhaps by using low prices for the next few years.

There are no clear solutions for these plans. Planned - Buy the first house right after finishing education. Graduate students deal with dozens of student loans at around $ 100,000 and bear credit card obligations from external costs generated at school.全体として、債務を積んだ卒業生は、現状の貸出業界にとってあまり魅力的ではありません。これは特に、大学や大学院を離れた後、高等教育ローン債務に負担をかける学生がそれほど多くない場合に発生します。しかし、単に学生ローンの支払いを時間通りに行うだけで、住宅ローンでより良い金利を得るチャンスが広がります。最初の家を購入することを検討している人は、必然的に価格が上昇するのを待つために、少なくとも今後5年間はそこにとどまるのに十分な安全性を感じる場所を決める必要があります。

しかし、良いニュースがあります。連邦住宅庁（FHA）は、新たな住宅所有を大いに促進する特別な初回住宅購入者ローンを保証します。これらの貸出金は、貸出機関から資金を提供され、米国住宅都市開発省によって保険されています。 Allegheny郡でここに一戸建ての家を探している人は、現在の貸出限度額は$ 327,500です。このような融資を受けることの大きな特典は、前払金の要件が総融資額のわずか3％から10％に減少したということです。

今日の初めて住宅購入者が享受するメリットに加えて、不動産価格が市場に投入されるにつれて不動産価格が過去最低水準まで下がり、今後数年間は停滞するだろうということです。これは、学生ローンの支払いを伴う学生には、学生ローンの支払いと組み合わせても扱うことができる信じられないほど低い価格（そして、エゴ・モーゲージの支払い）のために利益をもたらすでしょう。さらに、多くの個人ローンは信用格付機関にも報告されていないため、志望する借り手に負担をかけることはありません。貸し出しの犯罪行為を止めるためのより多くの解決策が立てられるまで、初心者の家を見ている学生は自宅での成功を確実にするために、より積極的な自己教育に頼らなければなりません。

結論として

この経済危機からの落ち込みが広がります。業界のバストからの即時の結果は明確であり、単純な経済学で説明されています。住宅ローン金利が上昇するにつれ、住宅需要は減少した。 ARMローンを持っている人は、もはや家を持ち続ける余裕がなくなり、売却した（または、それよりも少ない程度では差し押さえられた）。その結果、供給のスピーディーな成長と、料金の上昇による需要の急激な減少がありました。住宅市場で発生した超過は価格を押し下げた。

近い将来に寄与する要因がいくつかあるため、最終的にどこが停滞するかは不明です。連邦準備理事会（FRB）は、自宅保有と住宅購入の両方を促進するため、金利を2倍引き下げた。金利引き下げ後もインフレが安定しているとすれば、もっと来る可能性がある。ある時点で、金利引き下げのトリクルダウン効果は、多くの借り手が直​​面する調整可能な金利に影響を与えます。新築住宅需要の減少により、その業界が減速することにより、利用可能な住宅在庫の供給が安定化するため、住宅建設も寄与する要素となるだろう。

LLPのFoley＆LardnerのパートナーであるAndrew J. Wronski氏は、最近、この危機が消費者金融業界に及ぼす影響について、教育的かつ賢明な要約を発表しました。 Wronski氏は、消費者金融に関する連邦および州の規制が劇的に増加すると述べています。住宅ローンと同様にパッケージ化され販売されているため、他の多くのタイプの消費者ローン（日​​常的な資金調達オプションさえも）が影響を受けます。すでにWronski氏は彼の最初の主張で正しいと証明されています。これは、先に議論された立法案を簡単に再検討することによって証明される。

2006年、この著者は5年間の簡単な計画を持っていました：責任ある住宅所有権を通じた公平性の構築によって、ハードワーク、うまく、バーを通過し、結婚し、無期限の家賃支払いの足場を失います。当時、ごみははるかに簡単だったようです。 「アメリカンドリーム」は最近の法律学校の卒業生を彼の上に置くだろうか？頭？

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