Loan Modification

Mortgage Reform Not Finished Yet

By Peter G. Miller

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act it might seem as though we’ve seen about as much action as we’re going to see on the mortgage reform front for some time. Alas, that’s not the case.

The legislation contains various provisions which leave final definitions, options and distinctions up to various regulators. In the best case private-sector loans will wind up with strict but obvious standards of lender responsibility, similar to what we now have with FHA loans. However, given the past history of federal regulators to act in the best interests of mortgage borrowers you can bet that we will now see a maximum push by industry lobbyists to overturn by regulation what they could not avoid by legislation.

The Wall Street reform bill “will adversely affect consumers and small businesses at a time when they need relief,? says William Howe, president of the National Association of Mortgage Brokers. ?The unfortunate consequence of this bill will be higher costs to the consumers and continued job loss for small businesses in the mortgage industry.?

And what, exactly, is wrong with the legislation?

“The final bill,” says NAMB, “will deprive consumers of their existing choices and options to finance mortgage closing costs. Consumers will only have two choices at the closing table: to come up with thousands of dollars to pay for closing costs out of their pocket at the closing table or to roll all of their closing costs into their interest rate. No longer will they have the opportunity to enjoy the benefits of utilizing both at the closing table. In effect, this would steer them toward financing all costs in the interest rate of the mortgage loan causing consumers to pay interest on these costs for the life of the loan. Congress has also failed to show any evidence to support provisions in the bill that tie an originator?s compensation to a consumer?s ability to repay a loan.”

Really? The new law will do all of these terrible things?

Does anyone seriously believe that the mortgage system does not need reform? Has anyone not noticed the huge number of people who have been foreclosed? How is it possible that these folks got loans in the first place if the old system worked so well?

?Despite NAMB?s efforts to spotlight the adverse consequences of some of the provisions contained in the bill, the provisions remain that will cause more harm than good,? said Howe.

This is a view obviously rejected by the House and the Senate despite furious lobbying. What’s so good about millions of foreclosures? The provisions which were in place and would have remained in place without reform are at the center of the mortgage meltdown. And the mortgage meltdown is central to the general economic distress which we now see.

?However,” says Howe, “NAMB is committed to working with regulators through the rule-writing process on the numerous regulations called for in the final bill.?

Hopefully, regulators with newly-stiffened spines will make the new regulations as tight as possible. An in-depth look at FHA guidelines would no doubt prove helpful.

Full post as published by FHA Mortgage Guide on July 27, 2010 (boomark / email).