Brokers are getting thrown under the bus, again.
I have been blogging about this for quite some time. My predictions were that brokers would slowly be forced out of business and they would be blamed for our mortgage and housing crisis.
While I believe that shady brokers and loan officers definitely had a huge part in this debacle, I also believe that there are good reputable brokers that offer a good service to consumers and they should not be classified as predatory.
I have friends that are brokers and loan officers and they are suffering because of this. But I also believe that is the price you pay, if you played the subprime game. In life as in business, one bad apple spoils the bunch and we had thousands of bad apples that added to the toxic broker spoilage that we are seeing now.
Just recently Bank of America and Wells Fargo have ceased operations on their wholesale channels. Cutting off loan programs and access to brokers. I assume that many of the lenders that have not imploded as of yet, will follow suit.
Now, a new bill has been introduced that will place some more needed pressure on brokers to shape up or ship their little booty’s out of the business.
Evolution of a broker and loan officer over the last 5-10 years
Brokers have been thrown under the bus by literally everyone that has an opinion about our mortgage mess. Well everyone except mortgage brokers themselves and the associations that represent them like the National Association of Mortgage Brokers (NAM.
The days of hiring loan officers based on their ability to fog a piece of glass and forge a borrower’s signature are over. Now, they will have to place some serious skin in the mortgage game.
The new bill “H.R. 3915 the “Mortgage Reform and Anti-Predatory Lending Act of 2007″ has some important features and provisions that will protect consumers against unscrupulous mortgage brokers and lenders.
Courtesy of the House Committees on Financial Services:
Washington, DC – Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) today introduced comprehensive legislation to combat abuses in the mortgage lending market, and to provide basic protections to mortgage consumers and investors. The bill, H.R. 3915, the “The Mortgage Reform and Anti-Predatory Lending Act of 2007” will reform mortgage practices in three areas. First, the bill will establish a federal duty of care, prohibit steering, and call for licensing and registration of mortgage originators, including brokers and bank loan officers. Second, the new legislation will set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay. Third, the legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. However, individual investors in these securities would not be liable. Finally, the bill expands and enhances consumer protections for “high-cost loans” under the Home Ownership and Equity Protection Act and includes important protections for renters of foreclosed homes.
Key initiatives of this new legislation:
* Require Licensing/ National Registration required for all Mortgage Originators whether they work for a Bank/ Lender or Broker.
* Minimum training and Continued Educational Requirements for ALL Mortgage Originators.
* Require personal net worth or bond in the amount of $100,000 as well as a clean background check
* Restrict Prepayment Penalties and fees
* Prohibit ’steering’ incentives for loan Products
* Prohibit Arbitration Agreements
* Protect renters in a Non Owner Occupied Foreclosure proceeding
* Protect 1st time buyers from Neg AM loans with educational requirements and additional disclosure requirements
* Require Consumers be qualified with fully amortized payment – Interest Only and ARM loans
* Require proven ability to re-pay on ALL loans
* Require a Net Tangible benefit AND Ability to Re-pay for Refinances
*Allow indirect compensation with proper disclosure
* Require if an Originator advertises the ‘best loan possible’ then they will HAVE to provide the ‘best loan’ possible to the consumer
* Tighten ‘High Cost’ loan limits- from 8% to 5% as well as lower APR caps
* Extend recession periods for high cost loans
* Impose a maximum standard of a 50% Debt to Income ratio on all loans
* Regulate a Max 4% late charge after 15 days (No other ‘late fees’ can be assessed by a Lender)
* No Balloon Payments
* An Originator cannot continually make High Cost loans, there cannot be a ‘pattern’ of this as a business practice
* Loan amounts under $20,000 cannot cost more t
han $1000 in total fees* All loans in process MUST be taken into consideration for final qualification
* Tax and Insurance Amounts MUST be calculated i
n ability to re-pay* Prohibit Originators from recommending default
* Require Exact YSP to be disclosed prior
to close* These requirements are not applicable to raw land
May all of the shady and unscrupulous brokers and loan officers that are now or soon to be going out of business, rest in peace. You will surely not be missed.
{ 6 comments… read them below or add one }
Many great ideas there… though the barn door is being closed after the equine escape.
Too bad that the “regulators” were asleep at the wheel when the abuses started… maybe things would not have gotten so bad. These new laws will help the next generation of borrowers, and that is great news.
However, there’s little help for those with unaffordable loans now.
- Paul
I agree Paul. There is little help now. But I believe in order to save their own butts (regulators, the Bush Administration etc.) will implement a massive bail out in order to save our country from economic destruction.
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