The Senate took on deceptive lending practices yesterday as it voted on a proposal that would ban mortgage brokers and loan officers from receiving bonuses for encouraging borrowers to take out loans with higher interest rates than they might qualify for. The bill also requires borrowers to provide proof of income sufficient to repay their mortgages.
The Senate rejected an initiative that would require home buyers to provide a minimum 5 percent down payment for their mortgage loans. The votes were part of deliberations on a wider initiative that would overhaul Wall Street financial regulations. The goal of the reforms is to avoid a repeat of the crash of 2008.
The Senate voted to amend a financial regulation bill that would dictate how and why mortgage brokers and bank loan officers get paid. The bill was sponsored by Senator Jeff Merkley, who said borrowers were pushed toward higher rate mortgages that they would be unable to pay. He argues that these defaults are at the heart of the foreclosure crisis we are experiencing right now
Under the new legislation, borrowers will be forced to provide proof of their income – through payroll receipts, bank statements, or tax returns. This measure alone would stamp out stated-income loans. Incredibly, stated-income loans did not require the borrower to provide any proof of their income. Unsurprisingly, many of these loans became delinquent or went into foreclosure.
The Senate rejected the aforementioned Republican initiative that would require minimum down payment amounts, as well as an initiative that would eliminate the requirement that lenders must hold on to at least 5 percent of any mortgages that were packaged and sold as securities.
Democrats voted against the initiatives because they believe that a down payment requirement would eliminate the home ownership option for many lower income families. They also wanted to make sure that banks would retain at least some of the risk for mortgages they issued in order to make sure that underwriting standards were at an acceptable level.
The Mortgage Bankers Association opposed the bill, saying it would create a separate set of rules for mortgage brokers and bank lenders.
What are your thoughts on the legislation? Let us know in the comments section below.
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juan
May 13, 2010 @ 11:53 am
While broker compensation was a factor in pushing certain mortgage products, that in and of itself was not the reason for our current crisis. It was the creation of artificial demand using lax underwriting standards, higher LTV and less documentation. Regardless of broker commissions, if a loan is properly documented chanes are it will not default unless some life changing event occurs such as job loss
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Laura Morton
May 13, 2010 @ 11:00 pm
Providing proof of income in order to obtain a mortgage should be standard procedure. We should not have to legislate this. The banks have operations manuals and it is already there. Our law makers should spend their time on more important issues. With reference to a minimum downpayment, that should be the call of the lender. It poses a greater risk and therefore warrants a higher interest rate. If the borrower is willing to pay the higher rate,and the lender is willing to complete the transaction, that’s fine. As long as there is transparency, and all the facts are disclosed, there is no reason for the Senate to get involved.
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Sarkis A
May 14, 2010 @ 7:09 pm
This is not and should not be a matter for congress to deal with. Their broad and populist approach is going to do a lot of harm to the housing industry and hurt the economy some more. As was previously stated, there are lots of solid borrowers with excellent assets and excellent credit histories that can not document the necessary income. If there are lenders willing to make loans to such borrower because they feel the borrower is a good borrower, the Senate should not take away that option. If any investor doesn’t want to invest in these loans, they should step aside and let those that do buy them.
My views tend to lean toward the left but I think this is an unacceptable overreach by the current senate.
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Abitunhappy
May 15, 2010 @ 5:41 am
I have been in the mortgage business for 20 years . I agree it is harder then ever to make a living. Things are going to get much worse sine the tax credit is over . I and everyone I know in this buiness have been shut off since the rush at the end of May. As far as selling no downpayments , no income check loans. If there was a buyer for these products ( the factory per say ) then we weould sell them of course . A job is a job , they need to make them available but the person needs to be filmed reading and going over the disclosures and also not allowed to have a foreclosure , the loss follows them forever. I love when I hear the loan officer never told us the rate could change . The truth is they signed the disclosures , the title company went over them at closing it is just they wanted that home so bad to show off they did it anyway . If someone owes they owe, how can yo get someone to buy a home out of their will? You can not even talk people into getting their teeth cleaned . So it goes like this , take away the drug smugglers there are no drugs to sell , that probelm is gone. Take away the product off Wall Street to secure it the loan officer can not write that type of transaction. It is not the loan officer it is that it is legal and available ( back then) , plus it was one more deal to feed your family . Thanks
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