Mortgage Types and Defaults
Tuesday, September 28th, 2010
“The housing crisis wasn’t caused by much-maligned exotic loans so much as lending huge sums of money to unworthy borrowers, a report released Monday suggested,” according to Eric Wolf, the real estate reporter for the North County Times.
Michael Lea, the Director of the Corky McMillin Center for Real Estate at San Diego State University, presented the findings of their report to the U.S. Senate Committee on Banking, Housing and Urban Affairs last week. The report entitled “International Comparison of Mortgage Product Offerings” was sponsored by the Mortgage Banker’s Association’s Research Institute for Housing America.
The report looks at multiple mortgage products offered in twelve different countries. The findings were quite simple. It is not the type of loan that is bad, it is the process by which the loan was granted that caused all the problems.
It comes back to one simple truth, if you lend money to people who have the ability to repay the loan, then you are likely to get the loan repaid, the form and format of the loan product should be that which best fits the borrower.
Lea believes that the mortgage market can work best when there are options for borrowers and lenders, when there is flexibility in the system. “My view of a robust product mix would have long-term fixed rates, rollover medium-term fixed rates, and some [ARMS], and borrowers could move back and forth through instrument types,” he said in a San Diego Daily Transcript article by Andrew Keatts.
The research was done in response to the Dodds-Frank Walls Street Reform and Consumer Protection Act passed earlier this summer by Congress.
