The mortgage lending crisis bears some eerie similarities to the tech-stock boom and bust of the 1990s. For a while, an escalating market provided so much money that unscrupulous people took advantage of lax controls and regulations. Then market conditions made everything tumble.
And a lot of innocent people got hurt.
In this case, the innocent victims are mostly homeowners who got into bad situations. Not all of them are innocent. Many of them should have known better. But many of them were desperate, inexperienced and easy prey.
A series of news reports in recent weeks have shed light on the extent of the fraud that helped to fuel the problem. New York's attorney general, Andrew Cuomo, has accused a major real estate appraisal firm of colluding with Washington Mutual Inc. to inflate the values of properties. If the allegations are true, this helped to artificially raise the prices of homes and extend desperate homebuyers even further with subprime loans.
The New York Times this week said a lax regulatory system has led some lenders to gouge homeowners during the foreclosure process. In some cases, needless fees were tacked on and the outstanding loan amounts were greatly inflated. In New Jersey, the Asbury Park Press uncovered a scheme in which homeowners in 27 states were lured into loans many of them thought were just ways to capture some equity from their homes. In fact, they were signing their property over to the lender, who also scammed third-party investors into thinking they were investing in the properties. The lender then used the good credit of those third-party investors to take out large loans on the properties. This was all made possible, apparently, by lax oversight on the part of lenders and title companies.
Real estate experts in Utah say the mortgage crisis has not hit here as hard as it has in other states. But Congress may be on the verge of passing laws that eventually impact lending here, as well.
Generally, the market is the best regulator in cases such as these. But some reforms could help. One bill would greatly reduce the prepayment penalties lenders could tack onto loans. Those penalties often made subprime loans less competitive, as lenders could not easily shop around for refinancing deals.
Most importantly, however, the criminals who exacerbated this crisis need to be made to account.