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Mortgage Market Complexity Foils Consumers and Undermines Fair Lending |
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Joint Center for Housing Studies - Harvard University The recent rise in foreclosures suggests that some borrowers are taking on debt that they have little or no capacity to repay, selecting products that are not suitable for their needs, or signing up for mortgages that they don't understand. Two reports by Harvard University researchers contend that these are just some of the inevitable consequences of an increasingly complex mortgage market and a regulatory system that has failed to adapt to the dramatic changes that have transformed the mortgage lending landscape in recent years. Funded by a Ford Foundation grant to the Joint Center for Housing Studies of Harvard University, this new research examines the behavior of mortgage market participants and the emergence of new mortgage delivery channels linked to the rapid growth of higher-risk subprime mortgages. "The situation facing consumers is made even more difficult" continues Retsinas, "by the widespread use of targeted incentives that encourage some mortgage brokers and loan officers to aggressively market confusing, and often more costly, subprime products to less than knowledgeable and often desperate borrowers." These concerns are magnified by the fact that the rise of subprime mortgage lending is linked to the rise of new and typically lightly regulated non-bank subprime mortgage specialists and their network of mortgage brokers, as well as new mortgage conduits that sell securities backed by "higher-risk" mortgages to the secondary market. Reforms for oversight of the primary mortgage market include: proposals to expand the reach of the "Interagency Guidance on Nontraditional Mortgage Product Risks" to include loans made by independent mortgage companies, legislation to extend existing Community Reinvestment Act (CRA) oversight to cover all lending organizations, and legislation that directs federal regulatory agencies to assume responsibility for the licensing of all mortgage brokers and loan officers that directly interact with consumers in the mortgage lending process.
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