Local Politics

Moore: Business Principles Should Prevent Mortgage Crisis

Posted October 16, 2007

— Blaming questionable business practices for a record number of foreclosures in recent weeks, especially on sub-prime loans, State Treasurer Richard Moore on Tuesday unveiled a list of principles he said would protect buyers from purchasing homes they can't afford.

North Carolina had 3,380 foreclosures in September, more than double the 1,600 reported during the same month a year ago.

"Too many Americans have been lured to mortgages they could not afford," Moore said, adding that sub-prime lenders focused too much on short-term financial gains rather than the long-term health of the industry.

Sub-prime lenders focus on customers with poor credit histories, and many of the mortgages contained low initial interest rates that eventually adjusted to rates that buyers couldn't afford, forcing them to default on the loans.

Moore's "Mortgage Protection Principles" include the following provisions:

  • Match borrowers with the most appropriate, fair and affordable loans for which they qualify.
  • Verify and documenting the borrower’s ability to repay the loan for all sub-prime loans.
  • Ensure sub-prime loans with an adjustable rate feature are affordable, rather than basing a borrower’s loan qualification on a teaser rate.
  • Don't charge prepayment fees or penalties on any sub-prime loans.
  • Don't offer employees or brokers incentives to place borrowers into higher-cost loans than those for which they qualify.
  • Clearly disclose all expected broker compensation, from lenders or elsewhere, for any loan options presented to the borrower.
  • Provide borrowers with a fixed-rate option whenever presenting adjustable-rate products.
  • Make the same services available to all similarly situated borrowers and ensure that there is no discrimination on any prohibited basis.
  • Conduct criminal background checks to ensure that mortgage brokers are of high moral character.

"We're going to send (lenders and brokers) this list of principles and ask them to voluntarily adopt them," Moore said.

As state treasurer, Moore is responsible for the state's $75 billion pension fund, which holds stocks in some of the nation's largest mortgage lenders.

Darlette McCormick, a Realtor with Coldwell Banker, said she plans to educate her clients about how to avoid foreclosure. She said she has seen too many families lose their dream homes in recent months.

"A lot of homeowners don't know what to do at that point, so they just kind of ignore the problem," McCormick said.


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  • JohnnyMalaria Oct 17, 2007

    Dee-dee dee

  • jimbo56 Oct 17, 2007


    No need to apologize. I guess as someone who has worked in the industry, I look at it differently.

    Put it into perspective. People with poor credit buy cars everyday. They pay a higher rate on that too. One only needs to look in the paper to see this advertised by every dealer. Are they discriminating? Don't higher rates cause people to fall behind on their car payments? Yet, I don't see Mr. Moore chasing down auto dealerships and banks on that. Only on houses.

    The alternative to sub-prime lending is to not offer financing to people with poor credit. In the 1980's when that happened, lenders were being sued for discriminatory practices. It's a double edge sword.

    Why an ARM? Because it is cheaper to offer someone a loan that everyone is in agreement should be paid off in 24-36 months. The rate would be higher if the investor thought they were carrying the loan for longer.

  • dh1964 Oct 17, 2007


    "Why do we have to have laws to protect people from being stupid?"

    Because very few of us are nearly as smart as we think we are. You've never been misled by aggressive/misleading advertising? I have, and I've had >10 years of college education.

    The fact is, "personal responsibility" has little to do with the current situation. This was essentially a pyramid scheme - the bottom feeders were making a killing with sub-prime lending, so all the big boys rushed in to play, pushing money into more and more dubious loans.

    You can preach personal responsibility all you like, but the borrowers are paying their price (foreclosure, etc.). The lenders, however, want the government, e.g. the Federal Reserve, to protect them from the consequences of policies they should have known (and probably did know) would eventually lead to disaster.

  • Nancy Oct 16, 2007

    "That said, I'm always amazed and amused by the "personal responsibility!" mantra coming out from the right-wingers on this one. Personal responsibility or not, it was obvious that the rise in interest-only and exploding ARMs would, at some point, create a financial crisis."

    Let's get real basic here. Anyone old enough to buy a home shouldn't make decisions they don't understand.

    Why do we have to have laws to protect people from being stupid?

  • nobstoday32 Oct 16, 2007

    What's wrong with an 8-9% for the 1st 3 years??? I'll tell you what is wrong with it. The 11-12% that follows and the 1.5% adjustments every 6 months there after. If they could not qualify for 6% how are they going to make the payments at 11%. I would say a buyer should fix the credit, debt ratio, etc. before buying. Never accept a higher rate on a house, it will bite you in the long run.... I had some issues to deal with before buying my house. We bought 6.5 years ago, but waited until we could qualify for a 6.75 fixed, refinaced 4.5 years ago at 5.25% fixed. Waiting to qualify for the best rate at the time was the right plan for us, and I will bet dollars to donuts it is good advise for anyone. We don't have money issues because our rate is so low. Today, we have $60,000 in equity in our house, and absolutely no plans to tap the equity. Please, when someone in the business gives good advise, take it and listen.

  • shine Oct 16, 2007

    "Moores Business Priciples Should Prevent Mortgage Crisis"

    Jimbo I owe you an apology and don't take my comments to you personally. They are just mine...... no one elses.

    I read the headlines again and maybe Moore was on the "water restricting board" also. Mortgage is already a crisis with the subs.... don't believe it there are real estate agents all over the country taking second jobs. It doesn't take rocket science to figure out why..

    Jimbo - I apologize again.

  • Durham-Raleigh Oct 16, 2007

    nobstoday32 -- thanks for the reminder not to mix the good in with the bad. It does, generally, take all kinds.

    That said, I'm always amazed and amused by the "personal responsibility!" mantra coming out from the right-wingers on this one. Personal responsibility or not, it was obvious that the rise in interest-only and exploding ARMs would, at some point, create a financial crisis. Personal responsibility or not, CMBS and other securitized structures have attracted lots of capital from outside the U.S. into our markets. Now the U.S. is the cause of a worldwide credit crunch.

    Wouldn't some regulation from the feds and the states two years ago have been welcome? To avoid future challenges in liquidity for our CMBS markets? Our bond and equities markets? Our massive, overbearing federal debt?

    Big picture, folks. Pick up the Economist and read the British perspective. This is not pretty and it's going to get much, much uglier over the next 24 months.

  • shine Oct 16, 2007

    jimbo56....... You know there used to be a time in this country when you could not receive a credit card unless you had credit. Now anyone can have one just like anyone can buy a house. What is your definition of "sub prime"? Sub prime is the applicant that you know can't get it done anyway...... If they could they would not be "sub". It is no different than an ambulance chasing attorney advertising on the back of a phone book or every 20 minutes on TV promising people that no ( no better ) a return... You may have been doing this for 20 some years but face it - if you did it 20 years ago you wouldn't be and didn't do it the same way you ( maybe not you personally ) are doing it now.

    Darn right the brokers will buy it back.. fifty cents on the dollar and sell it again - no different than selling used cars to sub primes....... and what is wrong with 8 or 9 % ... well if you sell it .. nothing ...... if you can't pay it ... everything.... No offense to you personally.

  • Nancy Oct 16, 2007

    "State Treasurer Richard Moore on Tuesday unveiled a list of principles he said would protect buyers from purchasing homes they can't afford.

    What about individual responsibility?"

    That is exactly the foundation of this tumbling pyramid of defaults!

    When, oh when will adults be required to be responsible for decisions THEY make on their own???

    The finger pointing for finding blame elsewhere is nauseating and makes me wonder how big a group of stupid adults there is out there!

  • jimbo56 Oct 16, 2007

    As for why they would take a subprime mortgage, it's the only one they can be approved for. Brokers have many more options that banks. Typically, they can offer a conforming (FNMA) loan at a better rate. Believe me, they can make just as much money providing a conforming loan as they can a non-conforming loan.

    Trust me, brokers are responsible for loans that don't perform. Anytime a loan goes into default, the investor immediately opens the file, audits it and almost always finds some reason to ask the broker to buy the loan back.

    Again, nobody has ever forced someone to buy a house or accept a mortgage.

    Why would they accept the terms? I've been doing this 20 years. When I started, conforming rates were above 12%. I isn't a crime to ask someone to take 8-9% for 36 months if their credit is subprime.