No one takes any responsibility for their actions. True, banks and mortgage companies have put many borrowers at risk with their loans. But where were the public, the bank regulators, the real estate agents, the mortgage brokers? Real estate agents should know about financing. Many are also mortgage brokers. And the public, what were you thinking when your income was exaggerated, or you bought a home you could not afford? Doesn’t anyone question how their loan works? Jobs were made up because they were not verified. I did these interest-only loans back in the late 1980s and we educated the borrowers and they did not have a problem.

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The United States Congress is re-visiting the mortgage banking laws, with the idea of further regulation of the lending industry. Consumers are experiencing financial problems from excess borrowing. Should lenders not allow borrowers to take mortgages that aren’t suitable for them? Should lenders who do allow it held liable? This series of articles from Mortgage 101 will attempt to answer the question “should lenders be liable for mismatched home loans?”

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Would you take out a 30-year car loan? Okay, you’re probably thinking that sounds outrageous, so let me take it down a bit. How about a 10-year auto loan? If you’re financing the purchase of a car with the equity in your home, that is exactly what you could be doing — paying for a car over 10 or even 30 years. The use of home-equity loans, lines of credit and cash-out refinancing to purchase automobiles grew in the last decade as interest rates dropped and property values soared.

It also has become popular as lenders hype the fact that interest on a home loan is tax-deductible, unlike interest on a vehicle loan. In 2006, about 24 percent of homeowners used a home equity line of credit to purchase a car or truck, according to Synergistics Research, a financial services market research company based in Chamblee, Ga. About 8 percent of homeowners took out a second mortgage specifically to buy a vehicle, says William H. McCracken, chief executive of Synergistics. But is buying a car or paying off your remaining auto loan balance with the borrowed equity from your home a good financial move? (more…)

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Alexis Idone is so committed to buying organic that she recently went to three different stores in search of an elusive item: organic cotton balls. With organic food surging in popularity, retailers are now taking the concept beyond the grocery aisle. A flurry of companies are pitching organic furniture, linens, cosmetics — even so-called organic leather. But organic nonfood products aren’t as tightly regulated as food. And even if something is made with organic material, some industry experts say, that doesn’t necessarily mean it’s 100% environmentally friendly.

Consumer sales of organic fiber for things like clothes and linens totaled $160 million in 2005, up 44% from the previous year, according to the Organic Trade Association, an industry group based in Greenfield, Mass. Demand is being driven by retailers all over the country who are introducing or expanding lines of “green” or “eco-friendly” products. Williams-Sonoma Inc.’s Pottery Barn is rolling out a new line of duvets, sheets and towels made with organic cotton this spring. Furniture and textile designer Q Collection will soon introduce a line of organic bedding for children. Retailer Gaiam has even added organic cotton shower curtains to its product line. The industry is catering to people like Ms. Idone, a 42-year-old creative director from New York. Besides the organic cotton balls, Ms. Idone also has her eye out for an organic sweater for her dog. “I don’t want chemicals going into my body or the environment,” she says. (more…)

Jemima and Ricardo Sanon, 30 and 29, saw the possibility of trouble before they ever signed their mortgage documents in 2004. The Sanons had diligently saved $5,000 in preparation to buy their first home, but the sum was just enough to cover the closing costs. So to finance the $290,000 purchase price of a Waltham, Mass home, they took one loan for $232,000 and also a piggyback loan for $58,000, both from New Century Financial, a subprime lender.

The smaller of the two mortgages didn’t worry them. The terms were fixed for 30 years at 10.7 percent, and the monthly payment of $538 was something they felt they could handle. But the larger loan was fixed for just two years. After that, the rate would adjust every six months, which is typical for subprime borrowers. “I worried about how we would make payments when they increased,” said Jemima, a medical assistant. “The mortgage broker [at New Century] told us we could refinance.” A spokeswoman for New Century declined to comment on the specifics of the Sanon’s case citing privacy issues, but she did issue this statement: “New Century is offering special programs that are designed exclusively for current New Century borrowers who are most susceptible to payment shock at the reset of their loans.” (more…)

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H&R Block Inc., the largest U.S. tax preparer, said on Wednesday its decision to write down the value of its Option One Mortgage unit, a subprime lender now up for sale, increased the company’s third-quarter net loss by $15.5 million. The company also disclosed in a regulatory filing that it does not expect Option One to meet covenant terms for eight warehouse credit facilities when its waivers expire at the end of April. The unit did not meet net income requirements as of January 31, but obtained waivers from lenders through April 27. Without the waivers, warehouse facility providers would have the right to terminate future funding obligations, Block said. The company expects it can get waivers from enough lenders to continue certain activities.

“While this termination could adversely impact OOMC’s ability to fund new loans, we believe this risk is mitigated by options available to H&R Block,” the company said. The increased third-quarter loss came after H&R Block on Tuesday trimmed the book value of Option One by $29.2 million before taxes. That increased the net loss for the quarter ended January 31 to $60.3 million, or 18 cents a share. “In light of the extreme volatility in the mortgage market, we conducted a rigorous review of the carrying value of all the assets of our Option One Mortgage Corp. subsidiary,” H&R Block Chief Executive Mark Ernst said in a statement. Shares of Kansas City-based H&R Block dropped to $18.31, the lowest level since May 2003, before trading down 22 cents, or 1.1 percent, at $19.83 at mid-afternoon. H&R Block showed signs of the current meltdown in the subprime mortgage market last year, when it began reporting rising defaults from mortgages extended to people with poor credit. Block also was forced to buy back sour loans it had sold to Wall Street banks. These setbacks, and pressure from shareholders, prompted Block in November to announce it would consider a sale of the mortgage unit. Block says there has been a lot of interest in the business, which it expects will fetch more than its $1.3 billion carrying value. (more…)

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