It might explain why so many people subprime loans were made. These types of loans were a scam. So it is appropriate that conmen sold them. This article is from Miami Herald:
Gary Kafka, former body builder uith a long rap sheet and violent past, wrote millions of dollars in mortgages in South Florida without ever applying for a state license.
Fresh out of prison after serving time for bank fraud, he never went through a criminal background check before selling loans. He never took a competency exam.
He never had to.
More than half the mortgage professionals registered in Florida -- 120,563 -- entered the industry this decade without being licensed by the state, The Miami Herald found.
Known as loan originators, they perform the same job as mortgage brokers but aren't bound by the same rules.
Time and again, industry leaders asked Florida regulators to bring this group under their watch by imposing mandatory licensing. But regulators refused to press for any changes, claiming that lawmakers would never approve.
The state's refusal proved costly during the biggest housing boom in Florida history: Thousands of loan originators entered the industry with criminal histories, state records show.
While The Miami Herald found breakdowns in the state's licensing system for mortgage brokers, the lack of controls over originators created even more problems for an industry steeped in the highest fraud rate in the nation.
The special group was created by state lawmakers 17 years ago to make it easier for lenders to hire people as the industry was growing.
But in the past eight years, more people with criminal records jumped into the business as loan originators than as any other category of mortgage professionals.
The government/Federal Reserve now realize that the subprime market was dishonest industry and are finally doing something about it. But is it too late?
The federal government has put its foot down: A lender can't give you a subprime mortgage unless you are able to repay it. And that goes for jumbo mortgages, too -- maybe.
You're probably wondering why the government finds it necessary to tell lenders that they shouldn't hand over the money before figuring out whether borrowers can afford the monthly mortgage payments. That seems awfully basic. But for a while, verifying a borrower's ability to pay was out of fashion.
From 2003 until last year, stated-income loans were the big fad because they allowed borrowers to exaggerate their incomes without having to provide tax documents as verification. Now, stated-income loans -- called "liar's loans" -- are rare because they're deemed too risky.
Now, more than a year after stated-income and subprime loans fell out of favor, the Federal Reserve has banned stated-income subprime loans. The new rules go into effect Oct. 1, 2009.
The rules divide mortgages into two categories: "higher-priced" loans and everything else. The "higher-priced" category is the Fed's way of defining subprime mortgages, which generally go to people who have had trouble paying their bills on time.
Some of the new rules apply only to this "higher-priced" category, which the Fed designed as a net to capture subprime loans. But some jumbo mortgages might get caught in it, too.
Under the new rules, you can't get a higher-cost subprime loan unless the lender decides that you can afford the highest scheduled payments during the first seven years of the loan. This means that if you get an adjustable-rate mortgage, you have to be able to afford the payments at the highest possible rate.
The rules ban prepayment penalties for higher-cost loans if the rate can change in the first four years. In any case, prepayment penalties can't last more than two years. And higher-cost loans have to have escrow accounts for property taxes and insurance.
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