It is interesting, over the past year we have heard how homeowners were taken advantage of by unscrupulous lenders and brokers, and how they didn’t understand the paperwork. Because of this, the problems that occurred were not their fault right?

While I agree that many borrowers were duped by BOTH banks and brokers, I am going a different direction on this today…… It seems like the borrowers were only following the direction of Congress…..

How many times in the last week have we heard that Congress didn’t have time to read a bill that spent BILLIONS of dollars? The complaints were they would have had to stay up all night to get through it. Um…. if it is as big of a crisis as we all were told, and the fate of the nation depended on this bill, don’t you think it is worth losing a little sleep over? Perhaps someone could stand up and say they couldn’t support a bill they haven’t had time to read yet? How do you know if you want to vote for it – by the title?

We DO need to hold company leaders accountable for squandering money. By the same token, I think we need to tie Congress’s compensation to the effectiveness of this bill. If you are going to spend my money, I expect you to do it with as much care as you would your own money.

A good website that I recommend everyone go to is www.ReadTheBill.org. It would mandate that lawmakers have 72 hours to read the bill before they vote on it. Kind of seems like a ‘no-brainer’ but it hasn’t been enacted yet. Go sign the petition!

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Last week HSBC announced they were shuttering Household International, parent company of Household Finance and Beneficial Finance. This amounts to closing ~800 offices nationwide.

Household, made infamous by its almost $500 Billion settlement for ‘predatory lending’ several years ago, was one of the only remaining places offering credit to customers with less than perfect credit. While these ‘subprime’ customers have taken a lot of heat over the past few years, they also serve an important market niche.

A recent article in The International Herald Tribune by Floyd Norris (full text here) discusses the closure as well as discussing the business practices of Household. It is a good read, and recommended.

While Household has had it’s share of bumps and bruises, these type of specialty finance organizations serve an important purpose, and there is an ever growing vacuum that can and will be filled by organizations who understand the workings of true subprime finance. As the article mentioned, Household branches had disciplines that would have served the company well had they not been buying loans on the secondary market randomly.

Subprime finance can be a lucrative business when it is run right, and serves an important role. These finance organizations many times are the power behind the ’90 days same as cash’ promotions businesses advertise, and offer a means for people with new or no credit to establish themselves. When using prudent methods of underwriting loans, and when the person making the loan knows they also have to collect the payments, the loans tend to perform well.

There are still a couple of outlets that offer this type of financing, American General, Citi, and Wells Fargo Financial are probably the most recognizable names. There are some smaller groups that do this as well.

That said, there is a HUGE hole now that could be filled by an organization who understands the intricacies of this niche market, and given the market timing, the rewards could be well worth the risks…… Anyone have a couple hundred million to get this rolling???

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Some recent changes by the people in the new FHFA (the entity that now controls Fannie Mae, Freddie Mac, and the FHA) should have a positive impact on the housing market!

Someone must have looked at the market and realized that unless we open up financing to those who are actually paying their bills but are upside down in value vs their loan, we will only continue to spiral. An announcement from Fannie Mae today opened up the door to a new, streamlined method of refinancing. This is labeled as Announcement 09-04, and it lays out the guidelines for the newly titled “Home Affordable Refinance”. Full text here.

What is exciting about this program is it appears to give borrowers who have made the last 12 months payments on time an option for limited or reduced income documentation. This will be a boon to those self employed or commissioned persons who qualified on ‘reduced income documentation’ loans in the past and have been unable to take advantage of the lower rates.

For those who are concerned about the reduced income documentation, these are borrowers who have made the last 12 months payments on time, and these loans should reduce the amount of the payment they have been making. If they have been paying on time and you lower those payments thereby making it easier for them to pay…. Logic says they will continue to make their payments.

Another BIG deal is Fannie has decided to let QUALIFIED investors to finance up to 10 properties instead of limiting them to 4. This will help clear out some of the inventory as well. Full text here. This is Announcement 09-02

All in all, this is good news for mortgage companies, and brings good opportunities for those saddled with bad loans or looking to invest in real estate!

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