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Monetary Policy and Mortgages
The businesses of mortgages lead to their own problems. Recently it was stated by the attorney for the Western District of Missouri that the owner of a mortgage invest company and three employees of Ameriquest Mortgage were charged with an indictment. The effort made by them was to cheat Ameriquest and some investors through the process of false loans for mortgage. Brent Michael Barber who is 40 years of age is the owner of Somerset Homes and Investment Company as also previous owner of The Beef Pit, a Grandview, Mo., restaurant, along with Chauncey Joseph Calvert, aged 34, Avonda Lynn Nicodemus, aged 32, and Roderick Neil Criss, 33, all former employees Ameriquest in Gladstone, Mo., were named in a 62-count indictment given by a federal grand jury in Kansas City. The main accusation was that these individuals had planned to cheat Ameriquest and other investors from the period May 1999 to December 1999. (Three Former Mortgage Company employees Indicted for $4 Million Fraud Scheme)
The process was to get money from the mortgage company through false loan applications and inflated values of property. In the process of cheating, the accused induced some individuals to purchase or obtain loans for the purchase of real estate with a promise that the chief among the accused would get them individuals to rent or buy the properties within a short period. The charge also alleged that the investors would end up paying no money from the properties but would get a portion of the fees that would be paid or a percentage of the profits. (Three Former Mortgage Company employees Indicted for $4 Million Fraud Scheme) This clearly indicates that getting a mortgage and buying a property in America is a highly profitable business today.
The situation is such that some companies like Annaly Mortgage Management, Inc. have decided to institute a code of conduct for their employees. This is also expected to ensure that the proper ethics are maintained and all rules, laws and regulations of the government are observed. These are expected to lead to the success of the company. The company believes that integrity and accountability will lead to a success for the company. Every employee of the company has to follow the rules and any exception can only be made by the Board of Directors and that will also have to be informed to the shareholders as is required by law. Any violation of existing laws, rules or regulations by any employee, officer or director has to be reported immediately to any other officer of the company. In the case of doubts, guidance should be taken from seniors. When a situation of conflict of interest of an investment with the interests of the company happens, the investment should be avoided. (Annaly Mortgage management, INC Code of Business Conduct and Ethics)
The meaning of conflict of interest here is the benefit of any project going to any individual at the expense of the company, or it appears that it is happening. Other conflicts happen when an employee, officer or director has to take action that makes work difficult for the individual. It may also happen when an employee receives benefits for himself, or others related to him through his being in that position. The benefit may be from the company or an outsider. The information within the company has to be kept secret except when it has to be legally disclosed. Before disclosures, it is important that legal counsel be obtained. There has to be fairness in dealings carried out by the employees with all types of outsiders like parties, vendors of properties, and competitors. The employees should not try to gain entertainment and gifts from others through misuse of their position. Some types of gift like cash, a gift not given in line with present practice, or of very high value should not be accepted. The gifts should not have a chance of being felt to be a bribe, payoff or kickback, or violate any laws or regulations.
The employees should be very careful about violations of the laws on insider trading. This is mainly connected with the company's stock and for any trading in it by employees of all varieties, there has to be approval by the Chief Financial Officer of the company or the legal counsel. According to laws, the company is to make full, fair, accurate, timely and understandable disclosures in all reports that it submits to the SEC or also in all public communications. If this law is not followed, there can be serious problems. The individual employee may be held to be personally liable for the legal or ethical violation from the legal side, but even the company may institute disciplinary proceedings, or even termination of employment. This code of conduct was viewed as very important by the company, and the company wanted all its employees to sign a statement annually that they have understood the code of conduct, after reading it. (Annaly Mortgage management, INC Code of Business Conduct and Ethics) Thus, the laws are very strict and all companies should follow them strictly.
The general view is that the monetary policy views for the passing on of the money from one organization to another is one of the main factors influencing the economy through the pricing or the volume of the different documents of credit, or even of the cost of money. At the same time, the markets in giving credit are more influenced through the process of collecting securities for loan given. When the financial companies want to remove assets from their books, they may use securitization for this purpose. The objectives may even be to stop regulatory requirement on capital, or simple to remove the assets from their records. The regular forms of securities like credit market assets including home mortgages given by a bank are all combined with other assets and then these are given for investment by investors. (Securitization and the Efficacy of Monetary Policy)
This process of securitization of the home mortgage first came up in the 1970s, and the market for this type of securities has grown a lot since then. The movements in the market suggest that direct influence of monetary policy on economy has since declined and this is in terms of interest rates. This decline that is seen does not seem to be connected with the interest rates for mortgage. The present documentary evidence suggests that now the changes effected in federal funds are being directly related to the mortgage rates and this is due to high level of securitization. This means that the influence of policy is becoming weaker, and this is due to the volume of liquidity or credit that is available, and not the present interest rates. (Securitization and the Efficacy of Monetary Policy)
Now let us look at the effect of central banks and compare our situation to that of England. The ability of the central bank has to be accountable to the government and the public for it to be given independence. This will enable the bank to evaluate whether it has achieved its objectives or not. The problem comes when the number of objectives becomes very large, as it will become impossible to achieve all of them at the same time. Then it may happen that the central bank will be blamed for not achieving one objective and the bank may defend itself by highlighting the objectives it had succeeded in achieving. Those objectives would be mentioned to have been viewed as more important by the bank. This was the difficulty of accountability that was present in the previous system, and this was one of the main reasons why it was not understood that independence was required for the central bank to be independent for the monetary policy to be of success. This problem was solved by the present system in England that is being followed now with the realization that independence was needed. (Monetary Policy and Financial Stability)
The aim of the central bank was then decided to be containment of inflation. This is also acceptable as a logical view since that factor since it is a variable that can be directly influenced by monetary policy. This policy was also supported by ordinary persons since it was felt by them that low inflation was needed for sustained economic growth of the country. This again led to lower unemployment. During the last ten years or so, the inflation rate of UK has become about half of its earlier value, as also the interest rates. This change led to more borrowing for general purposes as well for houses by the people. This has been examined repeatedly and needs to be understood. When these changes were taking place, banks and other organizations lending money grew largely in terms of their balance sheets, and even though they were making less profit from the deals, the total profits were going up. However, the growth could not be indefinite,…[continue]
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