J. Linn Allen`s recent article on adjustable-rate mortgage overcharges noted that an audit of ARMs found a 47.5 percent rate, and ”overcharging actually occurred in 37 percent of the mortgages audited;” about 13 percent of all the errors found were for more than $10,000. A Resolution Trust Corporation audit confirmed the trend, showing a 30 percent error rate.
This is an outrageous abuse of trust and shouldn`t be tolerated. A simple solution to this problem would be to impose stiff fines to ensure accurate accounting. Whether in error or deliberate, lenders would be far more careful about billing practices if there were an economic disincentive for lax mortgage accounting. A penalty of 200 percent or even 400 percent of overcharges would provide significant incentive to the industry to stop these errors cold. This is better than a bureaucratic effort, which would be doomed to inefficiency.
The money raised from these fines could be used to lower taxes on financial institutions. This would actually reward banks with accurate accounting procedures and increase their profitability, while only penalizing those with sloppy or questionable standards.
