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2007-08-10 17:40:00

Mortgage Market Armageddon

John and Patti MazzaraLenders are closing their doors left and right. Over 100 national wholesale lenders have gone out of business since the first of the year. Foreclosures are the topic du jour. What's happening out there? Jim Cramer from CNBC's Mad Money recently had a rather emotional assessment on national TV just days ago. You can search for it on the Internet. Is somebody at fault? Why is this happening? What are the repercussions?

Patti Mazzara, Vice President of Minnesota mortgage broker Venture Development Inc.,  states, "The mortgage market is in trouble. There are many reasons why we are in the current crisis situation that presents itself today. While many would like to blame the banks and brokers for the crisis, they are failing to focus on the borrower and their responsibility in the loan process. Nobody put a gun to the head of the borrowers as they possibly intentionally overstated income on certain loan products."

Unfortunately, over zealous legislation by various states has sought to solve the problem by creating laws that remove certain types of financing. The states are trying to legislate the free market system of supply and demand. If certain loan products have higher default rate, the investors will eventually not buy them. If no one will buy the loan, it won't be created. Instead, the State of Minnesota and other states have removed the ability of borrowers to get "No Documentation" and "Low Documentation" loans. There is a book call 1984 by George Orwell where "Big Brother" decides what is allowed by society. The new State of Minnesota mandated mortgage legislation reminds me of this. John Stossel produced a DVD called "The Blame Game: Are We a Country of Victims?" that I would highly recommend the legislature view before making any more laws that will hurt consumers rather than help.

There are over 34,000 homes available for sale within the Twin Cities real estate market. Any legislation that removes a potential buyer from the market because he can no longer obtain financing due to state legislation is WRONG. The real estate market is dependent on first time buyers starting the "domino" effect in the housing market. Many first time buyers have no credit, limited credit, or blemished credit. These first-time buyers now have limited access to mortgage products because of the new legislation that affects subprime lending.

Subprime lending is not predatory lending Yet it is often assumed incorrectly that the two must go hand in hand. Predatory lending is wrong. It is illegal and always has been. Subprime lending fills the niche for borrowers who are unable to get a traditional "A Paper" loan because of income, job, credit, or all of these reasons. Some areas where foreclosures have been most abundant may not be attractive to the most credit worthy buyers. By removing mortgage products from the market that could have served borrowers more likely to purchase within those areas, legislators are actually making the foreclosure situation worse.

What's the solution? Let the free markets work like free markets. Have fairness among mortgage laws that apply to all lenders. Did you know that federally chartered banks are exempt from state mortgage laws? That means the laws don't apply to everyone producing loans within a state. Is the consumer benefiting from a two-tier system? How can consumers benefit when they are now given less choice and less competition? Who really benefits from these new laws? Who have you heard the least amount of criticism or complaints from? This current situation is wrong.

(John Mazzara is a broker associate with RE/MAX Associates Plus, Edina, Minnesota. John has been successfully selling homes since 1986. He is also President of Venture Development, Inc.)

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