Tuesday the US House and Senate plan to start refining mortgage legislation. The legislation would enforce the greatest overhaul to mortgage lending rules in decades. The mortgage legislation, part of the financial reform bill, is supposed to end the risky lending practices blamed for creating the financial crisis. Mortgage industry lobbyists are working really hard to take the teeth out of provisions that would protect consumers and limit the industry’s ability to discover loopholes in underwriting standards.
Resource for this article: Lobbyists fight to weaken new mortgage rules in financial reform by Personal Money Store
Preventing an additional financial crisis with mortgage rules
Suggested changes to mortgage lending rules consist of new rules for loan repayment, the ability to sue your lender for fraud or poorly underwritten mortgages, revised appraisal rules and rules about how much risk lenders must share on the loans they sell to investors. Housing Watch reports that most of these rules will affect how expensive mortgages will end up being and what types of mortgages will be offered by lenders. One of the key new rules mortgage industry lobbyists really would like to undermine requires lenders to hold a 5 percent stake in loans that are bundled and sold with other loans. Those bundles are the mortgage-backed securities that caused the financial disaster.
Are the mortgage lenders going to behave?
With mortgage legislation that needs lenders to hold a stake, the idea is that they’ll act more professionally with their underwriting. When lenders sold their risk along with their loans, they were careless and then handed out many loans which were destined for default. It was reported by the Wall Street Journal that mortgage industry lobbyists want to exempt mortgages from the 5 percent risk-retention requirement if the loans fully document a borrower’s income and assets and don’t contain interest-only payments, negative amortization or balloon payments. Exempt loans would also have to cap certain mortgage-origination fees at around 3 percent of the loan.
More expensive mortgages with new rules?
Banks say new mortgage lending rules about risk retention will make mortgages more costly for consumers because banks will be required to hold a lot more capital, a challenge for smaller lenders. But Housing Watch explained that consumer groups support “encouraging the market” to sell safer products. New mortgage lending rules will make sure there is a lot more paperwork for borrowers, but they already push a lot of paper trying to get loans in today’s constricted credit markets. More diligence from banks about verifying a borrower’s income to prevent default should be good for everybody.
Protecting borrowers from predators
New mortgage lending rules will contain compensation guidelines that prevent lenders from making a lot more money by making riskier loans. This provision of the financial reform bill would make certain you will find lender-paid commissions based on the rate or type of loan. The Wall Street Journal reports that brokers say the rule would make it harder for them to compete with banks, reduce competition and raise costs for consumers. Consumer advocates say that the changes will likely make it easier for borrowers to shop for loans and compare prices. Barry Zigas, who is director of housing policy for the Consumer Federation of The United States told the Journal that the new provisions will shift the burden of proof “from the consumers having to protect themselves from unreasonable fees to the providers of services justifying their costs.”
Mortgage lenders being saved from themselves
Other new mortgage rules that are being fought contain limiting the fees mortgage lenders charge if a borrower refinances the loan or pays it off early. They also don’t like the rule that requires them to prove that it is in the borrower’s best interest to finance a loan, instead of just pushing a new loan to benefit from additional fees or commissions. Finally, mortgage lenders really just don't want borrowers to be able to sue them if they violate the new mortgage rules. Industry lobbyists say this would make getting mortgages too risky for investors.
Find more info on this topic
Housing Watch
housingwatch.com/2010/06/21/new-mortgage-rules-may-hurt-borrowers/
Wall Street Journal
online.wsj.com/article/SB10001424052748704050804575318753964100106.html?mod=googlenews_wsj
No comments:
Post a Comment