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US Ready To Sue Bailed Out Banks Over Misleading Mortgages

(Photo by Joe Raedle/Getty Images)

Some of the banks and mortgage institutions are set to be sued by the US government over what basically started the recession and housing bubble burst.  They are being accused of misleading mortgage securities with over inflated home buyer’s incomes and falsified information.  When homeowners could no longer afford their mortgages, the financial institutions went into a tail spin, which lead to the government bail out of some companies.  Read more from nytimes.com

The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.

Here’s the real question.  Although they may definitely deserve punishment for their actions, is this going to hurt the housing market and take away any progress it has made in the last couple years?

When we purchased a home last year, it was extremely difficult to get a mortgage.  We had a credit score well above average, cash in hand for the closing costs and down payment, and we were prompt with any information they needed.  I was at the point of giving up several times.  It took weeks of dealing with the underwriter of the loan to finally get approved.  I’m worried that with banks already gun-shy about giving out loans, that this could make the lending industry even tighter.

This country needs responsible mortgage companies that are willing to work with potential home buyers and focus on what is really financially important.  The more homes that are bought, the better off our fragile economy will be.

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