On the Spot (CNSNews.com) - IndyMac Bancorp Inc. and the federal government’s Office of Thrift Supervision (OTS) have accused Sen. Charles Schumer (D-N.Y.), chairman of the Joint Economic Committee, of sparking a $1.3 billion run on IndyMac by releasing a letter predicting its failure.
The run by depositors resulted in one of the costliest bank failures in American history and a federal takeover of the loan giant on Monday.
Schumer, however, denied wrongdoing in a press conference in New York on Sunday and blamed IndyMac for “irresponsible” action that led to its demise. He also suggested that the OTS be dissolved into another federal agency for its lax regulatory policies, which he said allowed IndyMac to act irresponsibly.
“IndyMac was one of the most poorly run and reckless of all the banks,” Schumer said. “It was a spin-off from the old Countrywide, and like Countrywide it did all kinds of profligate activities that it never should have. Both IndyMac and Countrywide helped cause the housing crisis we’re now in."
The Canadian central bank was watching developments in the mortgage lending sector closely to ensure that the abuses seen in the U.S. subprime market do not occur in Canada. Therefore it made several changes.
Reducing the maximum amortization is going to put people who are at the fringes of affordability out of the market since the 40-year amortization has been very popular with younger people who are purchasing their first home," he said.
These changes also set a maximum of 45 per cent for the proportion of gross income that is spent on debt servicing and housing-related fixed or essential payments.
And mortgages that begin with "interest-only" payments and home equity lines of credit will also not be covered by the government guarantees.
Ottawa noted that reducing amortization from 40 years to 35 years on a $200,000 mortgage with a six per cent interest rate would increase the borrower's monthly payment by $41. The borrower would also save $49,000 in interest payments.
In Canada, the government said Canadian banks and other lenders have not written many government-backed mortgages to borrowers with low credit scores, but to ensure this continues the changes will establish a credit score floor of 620.