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Federal Investigations Lead To Tougher Lending Standards

Posted By admin || 20-Aug-2010

Federal Investigations Lead To Tougher Lending Standards Now that the Great Recession is well into its second year, major players in the foreclosure crisis are coming under closer scrutiny by federal regulators trying to figure just how much financial blood mortgage servicers have on their hands. 

Americare, which operated as Premier Capital Lending, and Alacrity Lending Co. of Southlake were among the targets of a federal investigation, Operation Watchdog. The Office of Inspector General is looking at 15 lenders in 11 states that have high default rates on FHA loans.

About half the audits have been completed, and they reveal just how much the underwriting standards declined in the second half of the decade, even after the housing bust had begun. Of 19 loans examined at Alacrity, six borrowers made no monthly payments, and only two made more than five payments before defaulting.

Many of these borrowers should have been denied mortgages or encouraged to take out mortgages that were in line with the reality of their financial situation. But because of the incentive to sell bigger and more expensive mortgages, real estate agents, mortgage servicers and other players in the mortgage industry unwittingly placed many ill-informed borrowers onto the road to foreclosure.  But the "party" seems to be over; lenders are instituting tougher standards and requiring larger down payments which could actually work to the benefit of homeowners in the long run.  Homeowners who are forced to save for a longer time to raise down payment money or who are forced to clear up bad credit before applying for a mortgage are less likely to end up in foreclosure and may avoid bankruptcy.

Categories: Loans / Mortgages
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