Mortgage Reform Anti-Predatory Lending - more federal legislation coming

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Mortgage and Lending

New legislation is coming through the House Financial Services Committee as additional response to the housing crisis and to the increase in foreclosures. The bill targets mortgage brokers and yield spread premiums.

The Mortgage Reform and Anti-Predatory Lending Act of 2007, HR3915, attempts to put into law prohibitions against doing a loan that is not in the borrower's best interest, requirements for minimum loan repayments, restrictions on refinancing that require a tangible net benefit.

It also establishes a distinction between mortgage brokers and depository institutions. Additional licensing requirements are put forward for mortgage brokers and broker compensation from lenders (yield spread premiums) are banned.

This ban on yield spread premiums does not restrict the equivalent investor payment to depository originations which is called service release or gain on sale.

North Carolina has just passed the first state ban on yield spread premiums. I do not have any details on the YSP ban or the other two mortgage related bills signed yesterday in North Carolina. The impact on mortgage lending in that state will be watched.

I remember some years ago when Georgia passed a predatory lending law that almost stopped all mortgage lending in the state, and required emergency corrective legislation. 

This new legistation enjoys momentum from the Housing Rescue and Foreclosure Prevention Act and from the general mortgage market problems. Industry professional and consumer groups need to review and consider the provisions to make sure that this bill accomplishes it intentions without bringing on unintended negative results of reduced competition, limited consumer choice, and increased consumer cost.  

There is still a lot going on in the regulatory and legislative realms, not the least of which is HUD's insistence on proceeding with loan disclosures that are confusing to consumers. Industry professionals and consumers need to be aware as possible, because these decisions will impact mortgage lending in the future.

 

Richard Smith

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Re-Blogged 1 time:

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  1. Bo Hussung 08/21/2008 08:03 AM
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hr 3915
mortgage refore and anti predatory lending act
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Rainmaker
192,010
Sacramento Grapevine
SacramentoGrapevine - Roseville, CA

WE NEED MORE PREDITORY LENDING LAWS

Aug 21, 2008 06:34 AM #1
Rainmaker
207,718
Richard Smith
Chattanooga, TN
FHA VA Rural Development in TN GA

Sindee,

I take it that the all caps comment means that you are shouting at me to emphasize your point.

Thanks for commenting, but read the bill.

Richard

Aug 21, 2008 06:47 AM #2
Rainmaker
161,760
Mark Organek
RE/MAX Alliance Group - Mesa, AZ
Las Sendas Homes for Sale REALTOR

Richard, I hope that readers of your post understand that all of these FAKE pieces of legislation are doing more harm than good.  You've put a great comment into your post and I wish you would boldface it so it stands out.  I don't think that our legislative branch has done their due diligence on any of the recent reactionary legislation.  You make a great recommendation when you say:

Industry professional and consumer groups need to review and consider the provisions to make sure that this bill accomplishes it intentions without bringing on unintended negative results of reduced competition, limited consumer choice, and increased consumer cost.

It is almost as if the large banks are buying votes in congress to eliminate competition.  They were messing things up just as much as everyone else.  I was a banker but I would trust a broker over an employee from a federally chartered bank any day of the week!

Aug 21, 2008 08:36 PM #4
Rainer
23,426
Rick Fitzgerald
AAM Capital - Chattanooga, TN
The MultiFamily Expert

The knee jerk reactions rarely solve complex issues such as this.  More predatory lending laws is simply addressing a sympton of an ailment in my opinion.  The lack of oversight in the creation of these products by bond dealers, investment banks and the like were the real reasons.  Most of that should have never been available to lend in the first place. And GA's bill a few years ago crushed the very people it was designed to help didn't it?

Aug 22, 2008 09:47 AM #5
Rainmaker
207,718
Richard Smith
Chattanooga, TN
FHA VA Rural Development in TN GA

Mark,

Thank for your read of the post and the impact of the new law. Actually, a good bit in the bill seems to me to have already been covered in the housing law. And the Fed Reserve has already address other issues with its new regulations.

HUD and the Fed Reserve have reviewed the YSP, and decided to continue it.

There is nothing that I see in the bill that is not already being addressed.

Richard

Aug 24, 2008 07:44 AM #6
Rainmaker
207,718
Richard Smith
Chattanooga, TN
FHA VA Rural Development in TN GA

Rick,

The GA bill shut down lending, even FHA. It was quickly corrected. It will be interesting to see the impact in NC. That state has a tough predatory lending law already.

You know, eliminating YSP does not eliminate the income. It only changes who gets the income. Now it will just stay with the large banks. And mortgage brokers will probably close up.

That ought to accomplish the apparent goal of the state government to increase mortgage interest rates by reducing competition.

Richard

Aug 24, 2008 07:49 AM #7
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Rainmaker
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Richard Smith

FHA VA Rural Development in TN GA
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