Noelle Knox
USA Today
Andy Sobel stands on the balcony of his condominium in San Diego Thursday. He’s six months behind on his payments.
Andy Sobel is selling his San Diego condo for $60,000 less than he owes on his mortgage. He’s six months behind on his payments, but it’s all he can do to avoid foreclosure. He’s also writing to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
“Please don’t let this happen to anyone else,” Sobel, 48, says he’s writing, and will explain how he was “duped” into buying his first home in 2004 with an adjustable-rate mortgage designed for him to pay only the interest each month, no principal.
Sobel, a community organizer for a non-profit, feels there was no regulation to protect him from the mortgage broker who got him a loan, then changed companies. Or from the lender who wouldn’t talk about renegotiating the loan until after the interest rate increased and Sobel had missed three payments. The bank agreed to let him sell the home at a loss to save the time and expense of foreclosing on him.
Like Sobel, more than 2.1 million Americans have fallen behind on their mortgage payments, the Mortgage Bankers Association said this week. Risky adjustable-rate subprime loans are going bad at an alarming pace. And the number of new foreclosures hit a record at the end of last year.
Just how did we get into this mess? To many critics, one big culprit is the loose patchwork of federal and state regulatory agencies that failed to do their jobs, abetted by a Congress that only now has called for reforms.
“The fact that the regulatory infrastructure is so fragmented — that has enabled all of this fraud and predatory lending to thrive in this country,” says Marina Peed, president of the Impact Group, a non-profit housing counseling service in Atlanta.
Federal regulators stand accused of reacting all too slowly to abuses in the mortgage industry. Meantime, state regulators — who oversee the majority of lenders — have been operating under mismatched rules that vary from state to state. In most cases, resources for their departments haven’t kept up with mortgage lenders. The value of home loans lenders made exploded from $500 billion annually in the 1990s to $3 trillion last year.
“That’s what’s made me angry here — that regulators apparently have not been doing as good a job as I think they should be doing,” Senate Banking Committee Chairman Christopher Dodd, D-Conn., said this week. Dodd said he’d call federal regulators to a hearing to explain “how we got to this point.”
But many of the answers will likely have to come from state regulators, because:
• 20 states have no testing or continuing education requirements for mortgage brokers or lenders.
• 19 states don’t do background checks of loan officers and executives to screen for fraud and other crimes.
• Only about half the states have adopted federal guidelines issued last September to curb the use of the riskiest and most exotic mortgages, such as the one Sobel got.
• Only 25 have laws against predatory lending. This involves selling high-cost loans that are plainly unsuitable for a person’s financial resources and prospects.
Oddly enough, federal laws enacted after the savings and loan crisis helped set the stage for this disconnected regulatory structure. Federal regulators, namely the Office of the Comptroller of the Currency and the Office of Thrift Supervision, gained jurisdiction over banks, thrifts and credit unions.
