By: Leland C. Abraham, Esq.
As the campaign trail gets into full swing, one of the topics of great importance is the candidates’ stance on the mortgage crisis. If you are unaware, the adjustable rate mortgage crisis has severely affected the nation’s economy in the last five years. The places especially affected have been America’s coastal states, like California and Florida. The mortgage crisis has affected people from many walks of life.
According to interviews, the main reason why most people agreed to an adjustable rate mortgage was because they were promised that the rate would be fixed for a couple of years and then the rate would drop. This was more attractive than a 30-month fixed interest rate on a mortgage that would never rise nor drop. Unfortunately, mortgage companies made far too many of these loans and because of the Iraq War’s effect on the economy, the interest rates increased instead of decreased as predicted. Because of the change in interest rates, many debtors defaulted on these loans. The houses then were sold at auction for a price far less then the market value. This bottomed out the housing market and had an effect on the economy as a whole.
All presidential candidates promise to do things that will have a positive effect on the economy. Very rarely are these candidates able to deliver on their promises because the economy is not controlled by the president. However, this presidential election is unique in that there are some things that the candidates can do to affect the economy.
First, the real estate market will have to be corrected before America can see an upswing in the economy. Senator Obama stated that one of the things he plans to do in response to mortgage fraud is to boost funding for law enforcement programs aimed at housing fraud by $40 million. He also plans to establish a database of censured or debarred mortgage professionals, so borrowers can easily check the credentials of lenders. Will these measures solve the problem of mortgage fraud? Probably not. There will probably still be lenders that seek out first time buyers and convince them to sign contracts with interest rates that will balloon to a point where the borrower will not be able to pay the note. It may not stop the problem, but it is a start to fixing a problem that has spiraled out of control.
Senator McCain has some ideas pertaining to the Mortgage crises as well. One of the measures that he wants to implement is to create a Justice Department task force that punishes individuals or firms that either defraud innocent home owners or forged loan application documents. This task force would also assist state attorneys in investigating abusive lending practices. Again, probably not going to solve the problem overnight as there is much to fix, but a task force is a good start.
Both candidates have mentioned that they want to go after predatory lenders. In particular, Senator Obama introduced the STOP FRAUD ACT in the Senate and has made it part of his platform. Senator McCain has vowed to do all he can to stop mortgage fraud with his task force. Whether these measures will be successful remains to be seen. One thing that borrowers can do is educate themselves about mortgages and the lending process.
The first step would be to research the lender. The borrower will want to check to see whether the lender is involved in any litigation related to predatory lending or mortgage fraud. Because we now live in the internet age, this can be done online. Online research can be done for free at public libraries who have computer access. Also, when a borrower gets a lending agent, the borrower may want to check all credentials the agent has. The state licensing agencies are usually good with verifying certification information. There can still be things that slip through the cracks, but borrower due diligence will go a long way in fixing the real estate mortgage crisis.
Second, if you have a mortgage loan, please have a lawyer and/or accountant review the terms of the loan agreement for you before you sign. These trained professionals will be able to translate complex language in a contract that you will be able to understand. Also, they will be able to give you legal and/or financial advice to see if this type of investment in real estate is beneficial for you.
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