Mortgage Mess Gets Messier
Despite cleanup efforts, the mortgage mess continues.
The Bush administration announced today a plan to freeze the interest rate on some subprime mortgages for five years, which could help more than a million homeowners. As an article on the CNN Money.com website details, the plan would grant those current on their payments a five-year freeze on initial artificially low “teaser” interest rates.
But meanwhile, it appears that the fallout from widespread risky home lending practices may be worsening:
The New York attorney general has subpoenaed major Wall Street banks in an investigation of whether they turned a blind eye as mortgages were issued to unqualified buyers and then repackaged for sale in large bundles to investors, according to the New York Times, the Independent and Reuters, among other media outlets.
At the same time, the FBI is launching a new Washington, D.C.-based task force today to investigate such potential fraud, according to the Washington Post. “Investigators are seeking to uncover evidence of overvalued home appraisals, shoddy lending practices and alleged irregularities in the packaging and sale of groups of loans that were marketed to ordinary investors, state investment funds and big Wall Street banks,” the article explains.
Meanwhile, just-released mortgage foreclosure data shows that delinquencies have reached new record highs, as detailed by Bloomberg and Reuters.
“There is a maxim that comes to mind,” says Josh Rosner of the Graham Fisher consulting firm, in today’s New York Times article about the attorney general’s bank probe. “If you work in the kitchen, you don’t eat the food.”
