The U.S. House and Senate will begin on refining mortgage legislation Tuesday. The legislation would like to enforce the biggest 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 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.
There are mortgage rules that prevent one more financial crisis
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 these rules will affect how expensive mortgages could be and what types of mortgages will be offered by lenders. One of the key new rules mortgage industry lobbyists want to undermine needs numerous of the lenders to hold a 5 percent stake in loans that are bundled and sold with other loans. .
Are the mortgage lenders going to behave?
With mortgage legislation that needs that all lenders will 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 many loans that were definitely 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 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 costly mortgages with new rules?
Banks say new mortgage lending rules about risk retention are going to make mortgages more expensive for consumers because banks can 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 are likely to make a lot more paperwork for borrowers, however they already push many 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 everyone.
Being able to protect borrowers from predators
New mortgage lending rules will contain compensation guidelines that prevent lenders from making more money by making riskier loans. This provision of the financial reform bill would bar lender-paid commissions that are depending mostly on the rate or type of loan. The Wall Street Journal reports that brokers say that 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. Director of housing policy for the Consumer Federation of America, Barry Zigas, told the Journal 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.”
Saving from themselves mortgage lenders
Other new mortgage rules that industry lobbyists are trying to fight contain limiting the fees mortgage lenders charge if a borrower refinances the loan or pays it off early. They also do not like the rule that calls for them to prove that it is within 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 don’t want borrowers to be able to sue them if they find some way violate the new mortgage rules. As outlined by Industry lobbyists this would make purchasing mortgages too risky for investors.
Additional information at these websites
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
