The U.S. House and Senate will begin on refining mortgage legislation Tuesday. The legislation would enforce the largest overhaul to mortgage lending rules in many years. The mortgage legislation, part of the financial reform bill, is supposed to end the risky lending practices blamed for causing the economic crisis. Mortgage industry lobbyists are trying to take the teeth out of provisions that would protect consumers and limit the industry’s ability to find loopholes in underwriting standards.
Source for this article: Lobbyists fight to weaken new mortgage rules in financial reform by Personal Money Store
Preventing one more financial crisis with mortgage rules
Proposed changes to some mortgage lending rules contain new rules for loan repayment, the ability to sue your lender for some 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 many of these rules will affect how expensive mortgages will be and what types of mortgages could be offered by lenders. One of the key new rules mortgage industry lobbyists want to undermine needs many of the 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.
Will the lenders of mortgages try and behave?
With mortgage legislation that calls for 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 very careless and handed out numerous loans which were certainly going to default. The Wall Street Journal reports 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 do not include interest-only payments, negative amortization or balloon payments. Exempt loans would also have to cap certain mortgage-origination fees somewhere near 3 percent of the loan.
Mortgages that are a lot more expensive with new rules?
Banks say new mortgage lending rules about risk retention are going to make mortgages more costly for consumers because banks could be required to hold a lot more capital, a challenge for smaller lenders. But Housing Watch said the consumer groups support “encouraging the market” to sell safer products. New mortgage lending rules can make more paperwork for borrowers, but they already push many paper trying to get loans in today’s constricted credit markets. More diligence from banks about completely verifying a borrower’s income to prevent default should be good for everyone.
Finding a way to protect borrowers from predators
New mortgage lending rules also include compensation guidelines that prevent lenders from making a lot more money by making riskier loans. This provision of the financial reform bill would bar lender-paid commissions that are based upon mostly on the rate or type of loan. It was reported by the Wall Street Journal 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 the changes will make it easier for borrowers to shop for loans and compare prices. Barry Zigas, 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 industry lobbyists are trying to fight consist of 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 needs them to prove that it is likely to be 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. According to Industry lobbyists this would make buying mortgages too risky for investors.
Read more on this topic here
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