Bad Credit Mortgage Loan Misery Lingers, Lenders Reload

The butcher’s son who built the largest mortgage lender in the United States is in no mood for soul-searching over the bad credit home loan crisis.
Perched on a chair on a ballroom stage, Angelo Mozilo, who made $387 million in pay and stock options over the past five years, disavowed blame for the recent home mortgage industry collapse, pleasing his audience of fellow home loan and banking industry leaders and foot soldiers.

“You’ve got to be careful when it comes to blaming ourselves too much,” the chairman of Countrywide Mortgage told the Mortgage Bankers Association this week.

The real culprits, he argued, are the Federal Reserve, with its series of interest rate hikes, crooked real estate speculators, falling home prices and regulators’ attacks on interest-only and risky subprime loans.

His take contrasts starkly with the view of those who blame loose lending policies and oversight, and a get-rich-quick culture in the industry.

The consequences of the housing collapse, however, are not open to debate.

Tens of thousands of mortgages have failed, pushing borrowers of subprime, or bad credit home loans, out of their dream homes, and many economists blame lending woes for a slump in the housing market that could get worse.

The downturn is likely to sap overall economic growth for the rest of this year, officials say.

Many consumers felt misled by the industry, lured to borrowing at subprime, the loan category for higher credit risk borrowers who pay higher rates.

But calls for a reappraisal of the industry’s practices have been met by protest. More red tape and bureaucracy would only make things worse, the lenders say, and few expect any major changes to be carried out.

“Regulation … is better for the crooks because only the good people have to comply,” Mozilo said.

“So I’m against it. In fact, it’s the regulators, in my opinion, that have caused part of the problem when they attacked the pay option and interest-only loans.”

Outside the conference hall, there was still plenty of bad credit mortgage misery. Over the next several years, more than a million foreclosures could occur when adjustable-rate mortgages reset at higher payments.

If people are unable to qualify for a mortgage refinance, that number could swell even higher.

Mozilo and Countrywide are still standing while New Century Financial Corp. and dozens of other subprime lenders have gone belly up. Indeed, the industry’s big players are set for a period of expansion.

Countrywide is hiring, picking from the best of the companies that went under, and Mozilo sees a better future for big players like Countrywide, Wells Fargo Home Mortgage and Citigroup now that the upstarts are gone.

Alan Greenberg, chairman of the executive committee at Bear Stearns, the No. 1 U.S. issuer of mortgage-backed securities, downplayed the impact of subprime lending woes on U.S. capital markets.

He said called the last few months a weeding-out process.

“I think the subprime (problem) has been blown completely out of proportion,” Greenberg said.

The industry wants the marketplace to make any necessary changes in its lending practices on its own. That may indeed turn out to be the only response to the crisis, with no legislation yet passed.

Calls for wide bailout plans have been dropped and any national plan to license mortgage broker and lender organizations or require education programs for borrowers have been ignored.

That gives little comfort, of course, to the consumer advocates dealing with the human detritus of the crisis.

Continue reading this article by Reuters …