Local bankers chafe at sub-prime comparisons
Some worry that increased scrutiny will mean more regulation
Bankers in central Massachusetts say they worry about being lumped in with so-called "sub-prime" mortgage companies that five years ago were handing out long-term, low-interest, no down payment mortgages to anyone with a job.
But bankers also say the whole sub-prime mortgage collapse isn't their fault, because their standards have always been higher.
"But if we can keep it out there that we are one of the most regulated industries in the country, and those regulations are there to protect the consumer," LaMountain said, then banks can keep their names from being muddied.
"You know, 3.99 percent sounds pretty good," LaMountain said. But many homebuyers who sought the services of sub-prime lenders were assigning too much of their income to the loan.
They found themselves at the edge of ruin when those rates climbed ever so slightly. "When it's 53 percent to income, and anything, a flat tire, $400, means you can't pay the mortgage," LaMountain said, maybe a mortgage just wasn't prudent.
Tale of collapse
One of the largest sub-prime mortgage lenders in the country, and in Massachusetts, was California-based New Century Financial Corp., which filed for bankruptcy after bankers and investors stop financing the company as mortgage delinquencies piled up.
At least 30 sub-prime lenders nationwide have closed up shop, filed for bankruptcy, or have sought buyers this year.
Now, Gov. Deval Patrick's administration is proposing tighter regulations that would require mortgage companies to fully disclose to customers what a mortgage would cost.
There are also proposals from Patrick's office to require mortgage brokers to be licensed.
At Economic Outlook 2007, a panel discussion on the region's economy hosted by the Worcester Business Journal and the Worcester Regional Chamber of Commerce, John Merrill, market president for Sovereign Bank and a panelist, said he's keeping an eye on the reaction of regulators, but is optimistic.
"Will the regulatory arms come out and clamp down on the mortgage industry a little bit? I don't think so because the sub-prime companies, some are going bankrupt, but the ones that are still in business are taming things down a little bit themselves," he said.
LaMountain said banks "are not going to be impacted on regulation changes. There may be a little more paperwork, but not any substantial changes in the way banks do business."
Bankers like LaMountain are hoping for new and more mortgage customers as a result of the sub-prime lending collapse.
And they're even coming to the rescue of homebuyers who were burned by low-interest, interest only and other mortgage company gimmicks.
LaMountain said despite the fact that some people found themselves in foreclosure when interest rates rose from below 4 percent to just above 6 percent, 6.1 percent, "is really a very, very good rate."
And if people can't afford to pay a mortgage at 6.1 percent, "maybe they shouldn't have a mortgage."
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