Alumni Magazine - Spring 2008 - (Page 23) they’re pumping lots of housing supply into the market. Every time there’s a foreclosure, they’re basically taking a homeowner out of the housing market. Those folks are not going to own a home for at least five years,” he says. The New York Times reported that in January alone, 153,745 initial foreclosure notices were sent out across the United States. “A lot of this was driven by a frenzied housing market. ‘I’ve got to get a loan as big as I can as fast as I can.’ If you want that, you go to a subprime lender. They’re faster, they’ll give you a bigger loan even though it’s a higher interest rate,” says Immergluck. “The other group is folks that just made bad decisions or got sold on a loan by aggressive sales tactics. Seventy to 80 percent of these loans are made by mortgage brokers.” Subprime loans may include “exploding” adjustable rate mortgages, zero down payments or no income documentation. A “piggyback mortgage” consists of the borrower taking out a loan for 80 percent of the home purchase price and another for 20 percent to cover the down payment. Immergluck told a congressional subcommittee in March 2007 that subprime lending grew from about $35 billion in 1994 to $665 billion in 2005. “A lot of loans are going into foreclosure in 12 months or less,” he says. “Georgia has a foreclosure process that’s a little over a month, and that’s way too fast. Ohio has a foreclosure process that can take two years, and that’s way too slow. It needs to be in between.” Concerning a charge that former Federal Reserve chief Alan Greenspan “was asleep at the wheel,” Immergluck says, “He wasn’t asleep at the wheel. He drove the car off the cliff. … Industry resisted heavily any kind of attempts at regulation. The way we regulate mortgages now is I give you a stack of papers and anything in there you’re responsible for, and if you sign it, that’s your problem.” He told Congress there is “an urgent need for making all actors in the credit supply chain more accountable for their roles in the mortgage process. Liability for reckless lending needs to follow the loan from broker to lender to investor. Investors should not be able to hide behind a veil of ignorance. Nothing will create accurate information and reduce fraud better than exposing investors to the downside risk of providing capital to irresponsible lenders.” Mortgages should “once again be based fundamentally on an ability-to-pay rationale,” he says. “I do think we need to go back to the plain vanilla, 30-year fixedrate loan.” TECHNOTES>>> Georgia Tech Alumni Magazine • Spring 2008 23 Photo: Stanley Leary
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