Mortgage, loan and property. What is a mortgage?

A mortgage is putting a property as a guarantee to a lender as a security for a mortgage loan.

While a mortgage in itself is not a liability or a dept, it is evidence of a debt. It is a transfer of an interest in property, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the property when the terms of the mortgage have been satisfied or concluded.

In other words, the mortgage is a guarantee for the loan that the lender makes to the borrower. In all but a very few states, a mortgage creates a lien on the title to the mortgaged property.

Wednesday, October 8, 2008

Mortgage crisis: Wall Street has a scapegoat

Wall Street has found a scapegoat for the credit crunch, which comes from the excesses of the housing market, particularly high-risk mortgages. It is the Community Reinvestment Act (CRA). They created the mortgage crisis!!

Even in Canada, bankers like Louis Vachon, President and CEO of National Bank of Canada, accrediting this thesis.

The law adopted by Jimmy Carter in 1977 and amended by Bill Clinton in 1995 aims to prevent discrimination against poor neighborhoods, preventing banks to lend only to rich communities. According to the banking industry, this bill would have had a perverse effect, forcing institutions to provide loans to people who do not really means.

Some, however do challenge that interpretation. Michael Barr, a law professor at the University of Michigan, calculates that more than half of high-risk mortgages were granted by independent lenders who escaped controls established by the Act. Another 30% of "subprime" has been made by subsidiaries of financial institutions that the government was not evaluating on a regular basis, compliance with the Community Reinvestment Act.

Thus, only a loan at high risk in five has actually been issued by a company subject to CRA, the professor explained in his testimony delivered in February to the Financial Services Committee of U.S. House of Representatives.

"While reasonable people can discuss how to interpret this data, he said, my personal opinion is that the greatest abuses and widespread occurred in financial institutions where the mortgage practices escaped scrutiny the federal government."

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