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Who is to blame for the massive amounts of foreclosures?

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By Tiffany Brewington - Editor
Record Information Services
November 2007

There has been much debate in the State of Illinois Legislature and in the media as to who is to blame for the massive amounts of foreclosures that are occurring all over the state, and especially in Northern Illinois.
 
The Federal Reserve Board states that there are many reasons people go into foreclosure, including job loss and health crises, but there has been much debate regarding the role of mortgage brokers and banks in the whole mortgage meltdown crisis.
 
Adjustable rate loans, 100% financing loans, Subprime loans, and No-Income-Verification loans are all products that both the mortgage and banking industry offer in one form or another. Many of the problems in the industry were from the so-called Subprime loans. Many political leaders and others were quick to blame the mortgage industry for the problems when in reality - the responsibility can be equally shared with homeowners, if one looks at the hard numbers.
 
Many people with challenged credit have been able to get loans thru the Subprime market, and many big financial institutions relished the thought of cashing in on these types of loans. Remember that the Fed Fund Rate was at 1% for a very long time, but when the finance companies could get perhaps 8 or 9%, it was just too appealing. Many of the larger banks got in on the deal but made sure that if the loans went bad, the mortgage companies would have to pay up - which resulted in many mortgages companies going belly-up.  
 
We will be debating the blame for the mortgage crisis for a long time. Eventually it will shake itself out like most of our economic tremors do. But as Illinois State Legislators attempt to put the clamps down on the mortgage broker a few facts have to be kept in mind:
 
Our company Record Information Services, Inc. compiles foreclosure and mortgage data for 15 Illinois counties. We have been doing this for nearly 16 years. We determined that the number of mortgages that went into foreclosure in Cook and Lake County in the last 12 months are roughly equal. We also determined that 50% were through banks, savings and loans and finance companies, while the other 50% were though mortgage companies.  
 
Often times well-intentioned politicians will hurt the ones their trying to help the most by composing poorly-thought out legislation. I’m afraid this has already happened in Illinois. The bank lobby was very effective in bringing the mortgage brokers down a few notches. Actually the marketplace would have worked out just fine without all the added roadblocks to getting loans. It squeezed all the bad apples out. If the State had enforced the laws already on the books, it would not have been necessary to create more.
 
My prediction is this: the people that will get hurt the most are the people who the State was originally trying to help: those with poor credit. It is very difficult for these people to get any type of loan nowadays. And there’s no way that the traditional banking industry is going to start making loans to people with bad credit. The mortgage brokers took care of that need. I realize that there are many industries that have bad apples, and the mortgage business is no exception. But bad apples are not limited to just the mortgage industry. What has occurred here is that that the baby has been hurled two blocks down the street with the bathwater, and as a result, people will continue to suffer higher rates of foreclosure because they have no way out anymore.
 
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