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It seems Congress will be swinging its pendulum to the opposite extreme if the Senate passes the Mortgage Reform and Anti-Predatory Lending Act of 2007 as it was proposed in the final version, H.R. 3915, which passed in the House of Representatives in November.
For those of you who weren’t around in the 1980s and 1990s, Congress prodded banks to make loans available to low-income families, many of which could qualify only for subprime loans. Now that those subprime loans are being defaulted on in record numbers, Congress is on the warpath. “Who’s to blame?!” Unfortunately, I can guarantee Congress won’t look in the mirror to find the answer since there are lots of other folks to blame out there – mortgage brokers, Wall Street, big banks, etc...
A radical change
Frankly, Congress isn’t the only one spreading that blame around. The nightly news is full of “mortgage meltdown” stories; “abusive lending” headlines abound in the papers. I’ve even heard REALTORS® say “Those lenders brought it on themselves!” Has that happened to you or does it sound like you? If so, I’m here to say we all need to knock it off! We are severely damaging our industry by continuing the blame game.
By most estimates, 80 percent of the subprime loans are not in default and 10 percent are only 30 days behind. So Congress could be ready to radically change the mortgage industry as we know it for the 10 percent of the subprime market that has problems.
The good and the bad
I like several of the changes in H.R. 3915, such as registration or licensing for loan originators which would include minimum standards, background checks and education. Another good part of the bill is the disclosure of compensation that must occur and the fact that the consumer must have a reasonable ability to pay the loan at the maximum interest level.
I like the prohibition of prepayment penalties on subprime loans...what I don’t like is the right given to consumers going into foreclosure to sue their mortgage lender, which would suspend the foreclosure. That just begs lawyers who have lower standards to go “sue happy” on lenders every time someone misses a payment and I guarantee that will cause many lenders to raise their rates to all buyers, possibly to the tune of two percent of the loan if many mortgage analysts are correct. How many of your buyers will no longer be able to afford their loan – either prime or subprime?
Another feature of the bill is to make banks that securitize mortgages liable for the original lender’s actions. This provision of the bill would stifle the lending market to the point that nobody would trade subprime mortgages. If they can’t be traded, they can’t be offered to consumers. How do you feel about losing 100 percent of your subprime clients for homes? That is just about every first time homebuyer I’ve seen in the last two years. And have you thought about the ripple effect when first time homebuyers can’t get a loan? That means no move-up buyers or higher-end home sales.
It’s everyone’s problem
I’ve heard a lot of real estate agents think that these mortgage law changes don’t affect them. I’ve heard REALTORS® at every level of leadership say “That’s the lender’s problem!” I’m here to tell you it is our problem and we had all better pull together, lenders and REALTORS® alike, to influence Congress before they really make a mess of the mortgage issue for the next decade.
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