By Chris Kramer
For many American households, finances have become a problem since the housing bubble burst-homebuyers who took advantage of subprime loans and adjustable rate mortgages are learning too late the downside of such lending techniques.
Now, local and national government officials are beginning to recognize a need for legislation for families facing bankruptcy and foreclosure.
But one organization thinks new laws aren't necessary.
The Mortgage Bankers Association (MBA) recently published a study suggesting that new legislation to regulate mortgage fraud and its consequences is not necessary. This could be worrisome or even startling for those who are struggling through with a bankruptcy filing or foreclosure proceedings as a result of fraudulent loans.
The MBA's assessment of the state of mortgage fraud laws may seem troublesome. By better understanding the definition and effects of mortgage fraud, though, their position might become clearer.
According to the report, mortgage fraud is any kind of deception on the borrower's part that causes the lender to offer a loan it wouldn't have offered with correct information. In the cases of many families, middlemen like brokers and conmen were responsible for providing fraudulent facts to lenders, and then misleading or lying to borrowers about their loans' terms.
Whether used to turn a profit or to get a house, mortgage fraud is illegal. And the authors of the MBA report claim that it's being committed with "alarming" frequency. The figures quoted in the report show that fraud has increased steadily over the past few years.
Mortgage fraud, according to the MBA, is not the same thing as predatory lending. Although both were common during the recent housing boom, predatory lending usually hurts borrowers specifically and directly. The two examples of shady house-buying are different enough, the report continues, that separate legislation is needed for each.
First and foremost, mortgage fraud hurts mortgage lenders. When lenders offer loans that borrowers can't repay, they lose money as their borrowers head toward filing bankruptcy. The FBI has reportedly estimated that mortgage fraud cost lenders between $946 million and $4.2 billion last year.
But, as lending companies lose money and need to compensate in their costs, homebuyers are affected. Even legitimate, non-fraudulent loans will cost more than they should if the lending company needs the cash.
Down the road, as ARMs reset and properties are foreclosed upon, the values of surrounding homes depreciate, which has a negative effect on homeowners in surrounding properties.
Despite these problems, the MBA's study proclaims that no new legislation should be passed to regulate and police mortgage fraud. The argument used is that new bankruptcy laws would come with new ambiguities, new problems, and new interpretations.
A more effective measure, the report concludes, would be increased funding for the enforcement of current laws, which have already been proven effective and workable.
For families worrying about the foreclosure of their homes or the spiral toward bankruptcy of their finances, this laissez-faire attitude suggested by the MBA may seem cold.
Keep in mind that the MBA works for the best interest of bankers, and is not primarily concerned with the best interests of individual borrowers.