| Fraud scheme piques mortgage broker's interest
DEAR BOB: I am a mortgage broker. One of my borrowers owns two properties. The first one is his primary residence. The other is a rental house. He intends to refinance and take maximum cash out from the investment property. Since he can't afford to make mortgage payments on both properties, he plans to default on the rental house by foreclosure. Is this a good or bad idea? What happens to the cash he gets from the refinance? --Julie H. DEAR JULIE: Can you spell f-r-a-u-d? If you knowingly participate in that fraudulent scheme, as a mortgage lender, you should lose your job and mortgage broker's license. Purchase Bob Bruss reports online. The borrower's credit will be ruined by the foreclosure and your reputation will be badly tarnished for participating because you knew he planned to default.
RBA Reassuring on Banks
Within a month, four of the Big Five banks will produce interim earnings while the Bank of Queensland trots out its figures in the middle of next week.The ANZ, St George, National and Westpac will all produce solid profit performances in the first half of the 2007 financial year and analysts are generally agreed that the main points to be watched will be the level of bad and doubtful debts in housing mortgages and personal, such as credit cards.And while there were fears there could be an upsurge in the level of dodgy loans and actual losses, it is now becoming clear from the APRA and Reserve Bank data, plus the RBA's financial stability statement on Monday that much of that concern was misplaced.In fact the RBA's comments on the banks and the banking system should be read by all bank shareholders: unless the RBA has made a horrible error, it's clear there are no black holes in bank balance sheets.Perhaps the most interesting area to watch is the implicit warning about the contraction of lending margins on housing mortgages because of low demand and high levels of competition.The RBA points out that there are hardly any mortgages being sold where the borrower is paying the bank headline adjustable or fixed rate, such is the intensity of competition.Banks' share prices have increased by around 14 per cent over the past six months, slightly underperforming the broader market.
Subprime mortgages not all bad
Don't get me wrong - I don't want to defend sleazy lending practices that have hurt homeowners who have subprime mortgages. But as one mortgage expert told me the other day, there's a difference between subprime lending and predatory lending: Subprime is good, predatory is bad. You can hardly see the distinction these days because so many news stories trace problems in the economy and financial markets to the "meltdown" in subprime loans, given to borrowers with low incomes or checkered credit, who cannot get ordinary "prime" mortgages. There are problems: Most subprime loans carry higher interest rates than prime loans. And, after the first one, two or three years, those rates typically adjust every 12 months. Many borrowers are now seeing their payments jump 30 percent to 50 percent, to levels they cannot afford.
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