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Chuck from Oregon City sure knows how to make the case for a two hour show!
He's a mortgage originator who's not thrilled with some industry practices. So he called to offer several sweeping changes. We only got Chuck on at the end of the program with no time for an in-depth discussion. So we're picking up here.
1) Require banks to keep the loans they make on their own books, not sell them off as part of a financial instrument for investors.
2) Include payment insurance as part of the loan fees. (He pointed out that private mortgage insurance protects lenders, but not borrowers.)
3) If a home is foreclosed, Chuck suggests any equity should go to the borrower, not to the bank.
Shane Jackson lobbys for the Oregon Coalition of Mortgage Originators (Chuck says he's not a member) and was a guest on today's mortgage program. He said that banks that hold onto loans are benefiting at the moment, as securities based on subprime mortgages have been crashing in value.
But he also said without the secondary market it might be difficult for banks to value a loan.
"It wouldn't just be the value of the house?" I asked.
Shane kind of sighed and said this was getting into some pretty deep economics -- and we really ran out of time. But I'm still curious, so I've asked Shane to continue his Econ 201 lesson -- and his answers to Chuck's other proposals -- here. Look for them shortly. And feel free to add your own!
There's one other piece of unfinished business. While researching the show, I came across this breakdown of why people default. It's put together by Countrywide, a major mortgage company (soon to be part of Bank of America), and I found it on a mortgage planner's blog. It says adjustable rate loans are the direct cause of only a tiny fraction of foreclosures . . although the major reason, a drop in income, seems potentially closely related. Then there's getting sick, getting divorced, and "low regard for property ownership," whatever that means exactly.
I didn't have a chance to bring this up on the air, but would love to hear your responses here.
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