May 13 2009
Congress considering legislation targeting predatory lending
Congress, once again, is taking up legislation designed to prevent mortgage companies from steering homebuyers into loans they can’t afford.
Nationally, foreclosure rates have been alarmingly high and a number of groups are blaming mortgage companies who engaged in predatory lending by not being forthcoming about the terms of loans. It has been alleged more than a few times that a lot of people having trouble paying their mortgages didn’t know what they were getting into when they took out those loans – that some lenders disguised the terms of those mortgages in hopes of getting bonuses for convincing people to take them.
The Mortgage Reform and Anti-Predatory Lending Act of 2009, then, is an attempt to regulate the mortgage industry. The bill, if passed, would end bonuses for brokers who steer borrowers into higher-priced loans and would require lenders to confirm borrowers’ income.
Also, the bill would prohibit lenders from making new loans or refinancing loans that don’t offer tangible benefits to borrowers. Two years ago, the House of Representatives passed a bill to regulate the mortgage industry and curb predatory lending, but it died in a Senate committee.
It’s worth mentioning that a good number of lenders have put their own measures in place to cut down on the shaky loans that have been blamed for at least high foreclosure rates in some cases and a sluggish economy in others. Anyone wanting to take out a mortgage, for example, had better be willing to come up with a down payment.
Additionally, it’s an established fact that lenders are looking more closely at credit reports than they have in the past and most mortgages require a down payment. Lenders have data suggesting that someone willing to put 5 percent of the purchase price down on a mortgage is more likely to carry though on the obligations under that loan than someone who puts down no money.
Mike Milner, past president of the Mortgage Bankers Association of Arkansas, said the investors behind many loans are requiring lenders to pull credit reports and verbally verify employment and income immediately before a loan closes. He believes virtually all investors will require those extra checks before long as lenders are very interested in taking what steps they can to cut down on loan default and foreclosure rates.
That makes a lot of sense, of course, as lenders lose money when a home goes into foreclosure. Taking a few extra precautions before a loan closes reduces the risk to the lender.
The National Association of Realtors has come out in favor of some mortgage industry reform. Also, Congress is taking a look at new regulations and lenders appear to be taking steps to cut down on the trouble they’ve had due to the issuance of shaky mortgages.
Whether or not the government takes action, it seems very clear that lenders and members of the real estate industry are aware of the problems caused when borrowers take out loans and can’t pay for them. A lot of groups are working to fix those problems and a more stable mortgage industry will hopefully emerge as the result.
Danny — It does at least appear that a lot of people know exactly what happened in the mortgage industry the last time around and are trying to fix it. Hopefully, we’ve seen the end of a lot of the shenanigans that caused the mess we’re in now.