Will the Suitability Law Protect Borrowers?
– Pushpa Sathish, Staff Writer
Consumer protection from fraudulent lending practices just got a boost with a new bill that proposes that loan officers, mortgage brokers and retail lenders not lend clients more than they can afford to pay back or more than their house is worth. Advocated and promoted by Rep. Barney Frank, the new chairman of the House Financial Services Committee, the bill will receive top priority to enable it to become a law that regulates lending standards across the country. The House Financial Services Committee is the primary originator of banking and mortgage-related federal legislation.
Consumers not well-versed with the way the mortgage industry works usually borrow beyond their means and end up deep in debt. One of five sub-prime borrowers who opted for reduced-payment, low-documentation mortgages between 1998 and 2006 are in danger of losing the roof over their heads because of sharp increases in payment and penalties, according to a survey by the Center for Responsible Lending.
What does the mortgage industry think of this proposed law? Steve O’Connor, senior vice president for the Mortgage Bankers’ Association, feels that a federally imposed suitability standard would be “vague and subjective,” and not allow the borrower to be in control of the transaction. Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, echoes O’Connor’s sentiments and adds that a suitability test “could lead to accusations of discrimination.”
If you enjoyed this article, please bookmark it at del.icio.us »
February 28th, 2007 at 11:43 am
I completely agree with Mr. O’Connor & Mr. DeLoach… federal legislation will be a watered down waste of taxpayers money. We have recently seen a number of states pass legislation intent on curbing predatory lending - Ohio just passed laws prohibiting stated income and no doc loans. Georgia, North Carolina, Illinois, New York all are in the process of or have already passed laws aimed at predatory lenders.
I do believe that the real estate “bubble” was partially caused by exotic mortgages. We must not try to legislate away a borrowers right to apply for certain financing if he/she clearly understands the features of the loan and is properly advised by an experienced and ethical mortgage broker/loan officer. It is the uneducated, unethical and downright dishonest ones that we must always watch out for.
To the end, I have recently been elected as chairman for a new organization - Mortgage Brokers for Change. I would like to hear from mortgage brokers and loan officers that would like to join the organization and morever, if they care to be a board member; we are still in the board election process. I can be reached at http://www.AskRonBorg.com or 727-361-1000.
March 27th, 2007 at 8:48 am
Great blog you have here and some great insights into the home mortgage industry.
Jordan