Mortgages into the United States - Essay Example

Introduction
It is a common fact that many people around the world opt to apply for a loan from a bank to solve an urgent personal crisis, make an investment, or buy a personal asset that is highly-priced. In most instances, people apply for loans either to make an investment or purchase a home. According to Boléat and Coles, the common trend is that after getting gainful employment and after completing studies, most people will always opt to buy a home which is considered a wise investment since the homeowners would soon avoid paying rent, which takes up a big chunk of a person’s total earning (18-19).

It is because of this reason that mortgage products have become very popular across the world and they have enabled many people to become homeowners.

Current problems faced by mortgagors and even the mortgage industry
This, therefore, creates a scenario whereby the borrower is unable to satisfactorily pay the monthly premiums and interest, which then forces the bank to enact the foreclosure agreement that would leave the borrower homeless. Such a problem derails the entire economic growth of the United States, which is still in a recovery phase, and unemployment is still an issue since according to Baily lower purchasing power by the consumers who are servicing high-interest rates means low demand for goods and products (33-35).

Boléat and Coles also lamented that presently borrowers have been locked with high-interest rates despite the fact that the rates have significantly decreased with the improved performance of the economy after the 2008 to 2010 financial crisis. Banks are only willing to allow a customer to switch to a cheaper rate if they are additionally using other products offered by the bank. This practice violates the directive issued by the Financial Service Authority that required lenders to treat the ‘captive’ customers fairly (89-93).
In regards to the banking industry, the main problem that they face is the increased regulation that was imposed on the industry especially with the new laws such as the Dodd-Frank law that requires banks to tighten their lending requirements (Boléat and Coles, 109-112). For example, while evaluating the suitability of a prospective borrower banks currently do not consider earnings that are variable such as bonuses and commissions of which in some professions they make up the biggest percentage of the total earnings of an individual. This has resulted in banks losing potential business and at the same time denying potential borrowers the chance to have a mortgage product. Equally, the national economy also suffers because there is a decrease in the demand for houses since not many people can get a mortgage product, and this generally fails to promote economic growth.

New mortgage rules
Christie wrote that early this year the United States federal government issued rules for the mortgage industry and they were simply aimed at protecting homeowners who were facing foreclosure. Among the new rules that were introduced are restrictions that prevent mortgage lenders from repossessing homes whose owners are currently seeking modification of their loans. Moreover, according to the new rules lenders cannot enact the foreclosure agreement until the borrower fails to make payments for more than 120 days.

Secondly, the new rules require lenders to issue a borrower with examples of alternatives to foreclosure that he or she can pursue and this is after the borrower has failed to pay within two consecutive months. Thirdly, Christie stated that the new rules require the lenders to offer early warnings to borrowers on a possible future hike of rates.

Even in the writings by Christie, she lamented that the new rules issued by the federal government are not sufficient to tackle the problems experienced by borrowers because they do not address the real problems that are affecting borrowers, which include fluctuating interest rates and the issue of borrowers being locked with high-interest rates.