Mortgage industry legislation begins

[Gan]

If the legislative process were a race, lobbyists interested in shaping the future regulation of the mortgage industry would have just started the 100-meter dash.

House Financial Services Committee Chairman Barney Frank (D-Mass.) fired the starting gun Monday morning when he released the details of legislation that aims to prevent the abusive lending practices experts say contributed to the current crisis in the subprime mortgage market.

The groups will barely have time to catch their breath before facing the first major test in the influence contest. On Wednesday, Frank is scheduled to preside over a hearing where federal regulators, industry players and consumer representatives will weigh in on the bill.

Yet while interest groups said it would take time to digest the broad and complex proposal and decipher its total impact on their members, two teams have already clearly emerged: those in the lending industry, and the consumer and civil rights groups who represent borrowers.

Mortgage industry groups warn that certain aspects of Frank’s bill would unfairly hurt the industry and make it harder for poorer consumers to get affordable credit.

Consumer advocates say the bill’s protections would go a long way toward curbing so-called predatory lending in the mortgage industry — but only if its enforcement provisions are given more teeth.

more...

http://www.politico.com/news/stories/1007/6516.html
__________________________________________________ ___

Finally we're starting to see congressional reaction, aside from TV interviews, on the fallout of the subprime failure and its causes.

This is something that I'm watching closely since I have a professional interest in how this type of legislation could affect my industry (currently land and title, formerly mortgage origination) as well as how it will effect our economy.

On one hand I saw first hand how free and loose the loan origination game was played the past year and a half. I can understand the need for some firmer rules on how loans are offered and the practice of fee assessment and the arbitrary range of interest rates that lenders and coorespondant lenders can apply to mortgagees. I can also see the drastic need for greater education and understanding of the mortgage process on the mortgagee side.

On the other hand, with respect to the education part, I also see the need not to hold the hand of everyone applying for a home loan, and not fostering the idea that the government will not/should not bail everyone out when they fuck up. Its a big world out there and getting a loan for a home is not an action to be taken lightly. A large degree of buyer responsibility needs to be taken into consideration when undertaking something of that magnitude.

Furthermore the securitizing market has officially learned the hard way about the risks of placing too much demand upon the lending industry for mortgage back securities. So any legislation that is enacted will take second place to the tighter restrictions that securitizers will have on accepting the types of securities made available (A paper, B paper, C paper, etc.).

Mortgage backed securities are a good thing, but as with all good things, a little moderation is something to consider.

So I'm torn on whether or not we need legislation and if we do have legislation, to what extent that legislation affects the market.

[TheEschaton]

I have to admit, I know nothing about real estate or the subprime rate, other than it lost some people some serious amounts of change.

-TheE-

[Clove]

On one hand I saw first hand how free and loose the loan origination game was played the past year and a half. I can understand the need for some firmer rules on how loans are offered and the practice of fee assessment and the arbitrary range of interest rates that lenders and coorespondant lenders can apply to mortgagees. I can also see the drastic need for greater education and understanding of the mortgage process on the mortgagee side.

That's it in a nutshell for me. Better efforts need to be put forth in both directions. Legislation designed to kill predatory lending practices needs to go hand in hand with better education for consumers- personally I think it should be a focus in public schools.

Once we can honestly say that we've addressed both sides of the coin (regulating predators and informing consumers) then it's time to let grown-ups make their own wise or foolish financing decisions.

[Gan]

That's it in a nutshell for me. Better efforts need to be put forth in both directions. Legislation designed to kill predatory lending practices needs to go hand in hand with better education for consumers- personally I think it should be a focus in public schools.

Once we can honestly say that we've addressed both sides of the coin (regulating predators and informing consumers) then it's time to let grown-ups make their own wise or foolish financing decisions.

/Agreed.

For the most part I believe there's too much power in the individual setting of rates with a natural bias towards profit from fees and yield spread from securitizing to servicing lenders and then again to investment firms as security bundles. If you add some federal regulation on how fees are assessed and standardize the qualification process to interest rate ranges then you can start going after the predatory lenders who intentionally defraud/mislead consumers who are either in a position being unable to access a competitive market or who do not understand the process.

Add to that some basic education on understanding of simple economics of banking with focus on how loans and mortgages work. Especially if its to be understood that the American dream is to own a home/property and a direct correlation can be drawn between that ownership goal and all high school students who aspire for that goal.

I used to volunteer with a group called The Texas Council on Economic Education (http://www.economicstexas.org/) which focused on getting quality information and resources to high schools on teaching and learning economics. I wouldnt be suprised if this is duplicated in other states, if not its a good thing to consider since the impact we have is through local college universities providing resources to local high schools on economic education.

[Suppa Hobbit Mage]

Why should the government legislate hand holding for people who buy homes they cannot afford? Why should the government allow lenders to lend money to people to buy homes they cannot afford. I mean, it's only the BIGGEST purchase a consumer can make, don't you think there should be some responsability on the part of the consumer?

Where was the uproar 2+ years ago when everyone was making money hand over fist in this industry?

I don't think the government needs to assist anyone.

[Tsa`ah]

Maybe they should revisit the FFIP while they're at it.

[Suppa Hobbit Mage]

Friends and Family for Incarcerated Persons?

[Tsa`ah]

Federal Flood Insurance Program.

Rebuilding multi-million dollar homes on barrier islands with tax payer dollars since 1968.

[Gan]

Why should the government legislate hand holding for people who buy homes they cannot afford? Why should the government allow lenders to lend money to people to buy homes they cannot afford. I mean, it's only the BIGGEST purchase a consumer can make, don't you think there should be some responsability on the part of the consumer?
Agreed, people need to quit trying to buy shit they cant afford, bottom line. On the same token, people need to quit trying to sell shit to people that they obviously know it cant be afforded. There is responsibility to be had on BOTH parts.



Where was the uproar 2+ years ago when everyone was making money hand over fist in this industry?
Depends on where you were listening. There were many in the real estate industry and in the market sector who feared this would happen. There has been an industry wide call for more broker/lender responsibility, its just fallen on deaf ears because of everyone being blinded by a bull run (high investor demand) on mortgage backed securities.



I don't think the government needs to assist anyone.
Depends on what you mean by assist. If you mean bailout, I agree, others should not be made to clean up the mess. Its time that people take responsibility for their actions.

If you mean assist in providing a level playing field for people to borrow money responsibily in a non-predator environment and at the same time put teeth in the enforcement of anti-predator lending laws, then I think some assistance is needed. I'm just torn on how much we should legislate this issue.

[Latrinsorm]

It definitely shouldn't be legal for companies to outright deceive people. As near as I can tell the only change proposed is quantitative, not qualitative.

The whole point of the government is to keep the individual from getting demolished (financially or otherwise) by the bad guys.

[Clove]

Why should the government legislate hand holding for people who buy homes they cannot afford? Why should the government allow lenders to lend money to people to buy homes they cannot afford. I mean, it's only the BIGGEST purchase a consumer can make, don't you think there should be some responsability on the part of the consumer?

Gan isn't saying any of that. He's saying there should be legislation in place to prevent lenders from offering loans to consumers that can't afford them.

Since it IS such an important decision he's advocating better consumer education. Loans are complicated and face it, if you haven't a background in finance where do you get your information from? I'll wager Americans without any finance education or background trust the guidance of the loan officer.

I've said this before and I'll repeat it. Financing is an essential skill to success in the United States today, because of this it needs to be required education at the high school level.

After that, it's buyer beware but as it stands now consumers looking for loans face wolves with very little protection.

[thefarmer]

I vote for Gov. funding of non-profit agencies to help consumers wade through the massive amounts of options and (sometimes) conflicting/predatory people/groups that buyers have to cope with.

There's always going to be shady people. However I liken it to Tsin and co. If people are aware of what the seller is doing, (by education and advice from respected groups/people) they're more likely to make a smarter choice.

[Clove]

I vote for Gov. funding of non-profit agencies to help consumers wade through the massive amounts of options and (sometimes) conflicting/predatory people/groups that buyers have to cope with.

Definitely another good approach. My only reason for feeling that financial education should be required in public school curriculums is my opinion that it is so vital to success in this country. If our goal in educating each generation is to ensure that they thrive, then financial training becomes a key component.

[thefarmer]

Definitely another good approach. My only reason for feeling that financial education should be required in public school curriculums is my opinion that it is so vital to success in this country. If our goal in educating each generation is to ensure that they thrive, then financial training becomes a key component.

I agree, it should be required, but I don't think that, with the state of public education today, it would have been effective enough to stop/lessen something like this. I just don't see many kids seeing a finance class as being useful to their lives. Instead I think they'll just pass it off as something they need to just get by in (like me and trig) and forget the minute the leave class/school/graduate.

[thefarmer]

I should add that I'm sure there *are* gov groups that do help consumers buy homes/take out loans. I just think they need to be more visible/respected/available without having to Look for them through a bunch of groups that claim to be impartial, but really aren't.

Kind of like Google is when it comes to searching.

Need something looked up? Google it!
Need help/advice on buying a home? HomesByGov it!

[Gan]

I just don't see many kids seeing a finance class as being useful to their lives.

This statement gave me a chuckle when I think back on what I thought was useful to my life at 17 and what I know would be useful to my life now and through my late 20's.

Contrary to popular belief, you dont know everything there is to life at the age of 17 - as my dear old mom used to tell me. ;)

If you approach the subject with the same approach that is used to teach high schoolers (and even middle schoolers in some cases) how to play the stock market game, then it should be easy to develop cirriculum based around how to buy a home. It could even be based as a class project much like setting up your own portfolio in the stock market lesson.

The only downside is the lack of conformity in lending laws across the different states. Thus the laws that would govern the rules of transaction would differ enough so that it could not be rolled out as a national program.