By Roger Bosma
I received the following in the mail recently:
“Your first mortgage, originally funded by ‘X Bank,’ can be restructured to a 10-year fixed payment of only $100 per month. This is not a typographical error. Your payment rate is only .375 percent and is fixed for 10 years … You can receive an additional $75,000 in cash, which will add only $23 to your monthly payment.”
The solicitation goes on to explain that the payment rate of .375 (note: payment rate, not interest rate) continues up to 10 years until the loan reaches a maximum allowable principal and deferred interest balance; so both negative principle and interest amortization!
This solicitation came from a mortgage company, not a bank. Herein lies the problem. The traditional bank continues to provide good service to their customers. Helping the consumer achieve their dream of buying their first house, the banker works with the customer, assuring that loans will be paid back and people’s lives will not be disrupted.
The problem with subprime mortgages is that they are not bank-originated mortgages. The problems came out of the mortgage companies and mortgage originators that originate loans, who receive their commission before the loan is sold, once, twice or many times. It would appear that the most important issue is the fee that is generated.
Banks are highly regulated by the Fed, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, state banking departments and, in some cases, the Securities and Exchange Commission. Other regulators need to stand up to regulate the communication of terms and conditions that lure unsuspecting homeowners into an area that may eventually take their most precious possession away from them: their home. It’s time for the Federal Communications Commission and the Federal Trade Commission to investigate.
Roger Bosma is president and chief executive officer of Lakeland Bancorp.