Tag Archives: Barney-Frank

Mortgage Brokers and Loan Originators Should Support HR3915

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Why am I not surprised that mortgage brokers are in a panic over HR3915, the Mortgage Reform and Anti-Predatory Lending Legislation? Back in January, Barney Frank gave everyone ample notice that he was committed to passing anti-predatory lending legislation before the end of 2007. Then the subprime meltdown began, setting a political stage for a perfect storm, putting mortgage brokers right in the path of harm’s way. Bush, your weapons of mass destruction are in the hands of Congress. Or so the mortgage brokerage industry would have us believe.

The fear racing through the brokerage community is rampant.  Wide-eyed loan originators are dragging themselves into my classroom looking like Iraq war veterans needing post traumatic stress disorder talk therapy, and the bill hasn’t even been put before the full house for a vote yet.   Let’s see if we can identify where all the fear is coming from.

Establishes a Licensing System for Residential Mortgage Loan Originators
We already knew this was coming. Chuck Cross with the Conference of State Bank Supervisors has been working on national loan originator licensing for months. Even better, the current proposed version of HR3915 says we’ll be keeping track of all LOs, including loan originators who work at federal and state chartered banks. This is what the mortgage brokers have said they want.

Creates a Residential Mortgage Loan Origination Standard
There’s nothing inside this paragraph that sounds too scary.  Licensing? Full disclosure? LOs are already required to do these things. What’s next? Oh, here it is:  Anti-Steering.

Anti-Steering
“For mortgage loans that are not prime loans, no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that varies with the terms of the mortgage loan (except for size of the loan and number of loans).  Regulations will be promulgated to prohibit mortgage originators from (1) steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide net tangible benefit, or has predatory characteristics, (2) steering any consumer from a prime loan to a subprime loan, and (3) engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.” Let’s try to analyze why mortgage brokers and LOs are so upset about this provision. For the past year, LOs on this website have fallen all over themselves telling us how they don’t do any of these things like (gasp!) steering consumers from a prime to a subprime loan IN ORDER TO MAKE A HIGHER YIELD.  So, if you good guys out there didn’t steer or originate loans with predatory characteristics, why are you so mad about this bill? You keep saying you want the bad guys out of the business. If it’s true that you’re not doing any of this stuff, then why all the whining? If the subprime market weren’t already dead enough, this bill will put the nail in the coffin. But don’t be fooled. Instead of subprime, the loans will be called something else.  When there’s money to be made, the creative mind knows no boundaries.  This provision gives mortgage brokers and LOs exactly what they’ve been telling us they want: the end to the abuse of YSPs.

Ability to Repay/Net Tangible Benefits
“Requires creditors to make a reasonable determination, at the time the mortgage is consummated, that  the consumer has a reasonable ability to repay the loan, or;  for refinancing, the refinanced loan will provide a net tangible benefit to the consumer.”

Well I call “reasonable ability to repay

Children, Can You Say "Suitability"

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If Congressman Barney Frank has his way, all mortgage originators will have to utter those words in the back of their minds when considering loan options for their clients.   Frank is not just any member of Congress, he happens to be the new chairman of the House of Financial Services Committee and his top priority is to create national laws to protect consumers from predatory mortgage practices.

Recently, on The Perennial Borrower post, I was asked by RCG readers how do I determine what loans are right for clients with all the options that are available in today’s mortgage marketplace.  It takes a great deal of determining what the available financing options are, what their financial plans are and then what mortgage makes the most sense, or is the most “suitable”.   This doesn’t happen automatically for every borrower with every loan originator.   Which is why states like Washington are now licensing Mortgage Brokers and Congress is looking into the same on a nationwide basis.  Currently, when we have subprime lenders calling on our office, they promote “how low they can go” in the borrower pool.   55% debt to income ratios are common–heck, you hardly have to be re-established out of your bankruptcy if you don’t mind the interest rate.  Can’t document your income, assets…don’t have a job but your credit is good–fantastic, we have a loan for you!  It’s true, there are a lot of mortgages that seem crazy and while they may not make sense for some, they do for other clients.  Suitability.

According to Kenneth R. Harvey’s article last Saturday, “…a new national standard might require loan officers to determine an applicant’s suitability for a particular loan program based on:

• Employment status, income level, assets and likelihood that income or employment could change;

• Other recurring expenses and the effect they could have on the borrower’s capacity to repay;

• The potential for higher future monthly payments based on the structure of the loan.

A suitability standard might also ban brokers and others from steering less-sophisticated borrowers to higher-cost mortgages than they qualify for, such as pushing them into complicated higher-rate subprime loans when they could qualify for prime rates and simpler programs.”

This sounds great…however; there is always another side to the story.  NAMB is concerned this could “lead to accusations of discrimination.”  I agree, I mean, are loan originators to provide IQ test to borrowers before determining if they truly understand a more sophisticated loan?  Who are we to judge?   Many times, this surprises me, I may not physically meet my client.  The entire transaction may take place over the phone or internet.  You do get a “feel” for whether or not a person understands the mortgage product by the questions they ask, but how do you really know?   If you’re a borrower who wants an option ARM and a lender (deciding you are less-sophisticated) insists on giving you a 30 year fixed, have you been discriminated against?

2007 should be a very interesting year in the mortgage industry.

To Catch a Predator

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Syndicated Columnist Kenneth Harney will report in his column tomorrow morning that the new chairman of the House Financial Services Committee, U.S. Representative Barney Frank, a Democrat from Massachusetts, has made it clear that his top priority will be enacting nationwide mortgage lending standards to protect consumers from predatory lending.

I was recently asked by a national housing coalition to sign an endorsement letter for the purpose of showing Congress that there is broad support for federal anti-predatory lending standards which do not preempt state laws. These ideas will be included and give to Rep. Barney Frank:

As Congress begins a new session, we respectfully ask that any new anti-predatory lending legislation be based on the following principles:

  • Considering a borrower’s ability to repay in lending
  • Eliminating the incentives for steering borrowers into predatory loans
  • Ensuring that loans are serviced fairly
  • Protecting the right to go after predatory lenders
  • Preserving states’ rights to protect against predatory lending
  • Preventing foreclosures

[photopress:bankersbrokers_1.jpg,thumb,alignleft]Let the wild debate between banks/mortgage brokers and consumer advocate groups begin! This is one area where the banks and brokers will more than likely combine their lobbying dollars together.

The biggest concern I have for any new federal law is: How are we going to regulate this?  Is the money going to come out of my tax dollars?  I don’t think so. IMHO the money can come from the profits of bank, credit unions, lenders, and brokers. If you don’t want to self-regulate your own industry, then please don’t make the rest of us pay for it. 

[photopress:predator_1_2.jpg,thumb,alignright]We can always ask Chris Hansen from Dateline NBC for help. “You’re naked, holding a container of cool whip and you’re trying to sell an adjustable rate, interest only, pay option ARM to the cute 18 year old mortgage lending prospect in the next room. Is that accurate?