The last sentence here should be a deterent, hopefully, but the standards are a bit vague:
WASHINGTON (Dow Jones)–Legislation to overhaul U.S. mortgage lending passed the House Thursday as lawmakers sought to rein in practices blamed for the foreclosure crisis. The legislation is a tougher version of a bill that passed the House in 2007 but later stalled. The current bill would establish national minimum underwriting standards for home mortgages and require originators to retain a portion of the credit risk of mortgages they sell to third parties. The legislation passed the House on a 300-114 vote.
Under the measure, mortgage lenders would be required to offer home purchase mortgages that a borrower has a “reasonable ability to repay.” For refinancings, the lender has to believe the transaction provides a “net tangible benefit” to the borrower. A lender violating these rules would be required within 90 days to modify or refinance the loan at no cost to make sure it meets the standards.
(Dow Jones Newswires 04:25 PM ET 05/07/2009)
Well, that bans NINJA/liar loans, but since they were already semi-illegal to begin with and nobody is stupid enough to do them today (I hope), it doesn’t really change much in the real world.
seems a little late, but definitely a good move.
About 5 years way too late.You will never rid the scum out of the lending business.Best thing to do is educate yourself.
Education is expensive but try ignorance!!!!!
Can someone please our honorable congresscritters to close the barn door BEFORE the cows get out next time?
…because loan modifications are working so well in the current situation.
I like the “net tangable benefit” part as well. Maybe if the loan was made with zero interest it would be beneficial.
20% of homeowners ‘underwater’
Study finds more than 20% of U.S. homeowners – about 20 million residences – owe more than their homes are worth.
http://money.cnn.com/2009/05/05/real_estate/underwater_homeowners/index.htm section=money_realestate
By Les Christie, CNNMoney.com
May 6, 2009
NEW YORK (CNNMoney.com) — More than 20% of American homeowners owe more on their mortgage debt than they can sell their homes for, according to an industry report released Wednesday.
The real estate Web site Zillow.com reported that 21.8% of all U.S. homes, representing more than 20 million residences, were in a “negative equity” or “underwater” position after prices dropped more than 14% nationally in the year ended March 31.
What!!!!
You have to pay it back?
Rats!
This legislation is essentially perfect:
1) It’s too late to have much effect, so it won’t annoy voters.
2) It’s vague, so the industry won’t complain too much, and in fact will be able to wrap themselves in it and claim they have reformed.
3) It allows the congresspeople to assert that they have a solid record of “doing something” at the next election campaign.
Pretty much a home run, I’d say.
Give me a break! Everyone knew what they were getting into. The borrowers, the lenders, builders, etc. As long as prices went up, no one cared. The banks could just foreclose and sell at a higher price, the borrowers could just flip and make a quick buck. Now, that prices have come back to normal levels, everyone’s started crying. The bankers want government bailouts since it’s not their fault their liar loans given to unqualified borrowers went bad. The borrowers are complaining about predatory lending practices, since they were seduced into getting loans they couldn’t afford. Everyone wants to screw the other guy for their mistakes.
Wow, I feel the hatred for what is going on coming back to this site. I think over the last six months many have ‘given’ up or stopped voicing their opinions like a broken record (except Shadash). Recent regulations just goes to show you how worthless congress has been. And they (congress) are the broken record. There will be more loopholes.
“For refinancings, the lender has to believe the transaction provides a ‘net tangible benefit’ to the borrower.”
1. For them to have to legislate this tells you something.
2. Like Dwip pointed out, extremely vague. So all they have to do is say they *thought* it was beneficial? How do you disprove something like that??
Here’s a link to the article:
http://news.morningstar.com/newsnet/ViewNews.aspx?article=/DJ/200905071640DOWJONESDJONLINE001008_univ.xml
Thanks Game Agent!
An excerpt:
A lender violating these rules would be required within 90 days to modify or refinance the loan at no cost to make sure it meets the standards. Otherwise, the borrower could rescind the loan. A borrower would also have the right to sue companies that securitized the loan and sold it to investors, where the rules have been violated.
Tighter restrictions apply to the so-called high-cost mortgages at the center of the subprime bust. The bill would ban “balloon payments” and require prior counseling for such loans.
The legislation would also prohibit yield-spread premiums, payments to mortgage brokers or loan officers for steering borrowers to high-cost loans. And it seeks to revamp the mortgage securitization process, widely blamed for fueling the shoddy underwriting standards of the subprime boom.
House Financial Services Chairman Barney Frank, D-Mass., has predicted the bill will be signed into law by the end of the year. However, that timeline could be jeopardized by Senate Democrats’ slower pace. The Senate Banking Committee has yet to tackle the issue of mortgage reform.
The credit risk of a securitized loan is born largely by investors, not loan originators. The legislation would require mortgage originators to retain at least 5% of the credit risk on loans they sell to third parties. The bill gives federal banking agencies the authority to set the level as well as leeway to make exceptions to the rule.
Proponents say the measure will give lenders “skin in the game”, increasing the odds they will carefully underwrite the loan. The mortgage banking industry and many Republicans contend the measure would reduce mortgage credit for consumers. The industry warns that large lenders would have to hold extra capital against their loans and lenders that don’t hold deposits would find it difficult to compete.
Geez, one would read that and think they mandated real DTI ratios.
I hope these standards will be perfectly clear, because otherwise the government will reinterpret them every 3 months and bankrupt the very banks they’re still bailing out.
What this also suggests is that even if a borrower engaged in outright fraud, it would be up to the lender to refinance and cramdown at no cost to help a thief obtain their home. Which he can then flip for a quick profit. The burden of proof is on the bank here.
Now, that prices have come back to normal levels
Um, I’ve got some bad news for you…
Where is the legislation that will jail politicians for passing laws, approving amendments and measures that try to force agendas that ultimately end up costing the taxpayers money? Where are all the hearings and testimonials on those who allowed Freddi Mac and Fannie Mae. Frank, Pelosi, Dodd and others are a real piece of work. Is the media trying to report on these matters? Yeah right. Let me get this straight in the private sector I can get fired for a very costly mistake, but in government I can BS my way out to continue to be relected. Did you know that there are classes at a community college in El Centro that teaches you how to work the government so that you can obtain social benefits? An actual class on how to obtain welfare. Nice!!
God Bless America.
While, yes, I agree they are trying to close the barn gate after the cows have gone out, but perhaps this re-keying the locks and possibly adding a self-closing mechanism might be beneficial in a few years when the memory of this fiasco is not so top-of-mind.
Rest assured that soon enough more cows will be put in the barn and I for one hope the doors are better monitored next time.
Whether THIS law is being crafted to actually do that, I don’t know.
“While, yes, I agree they are trying to close the barn gate after the cows have gone out, but perhaps this re-keying the locks and possibly adding a self-closing mechanism might be beneficial in a few years when the memory of this fiasco is not so top-of-mind.”
History tends to rhyme. Regulations will be ‘loosened’ to facilitate ‘innovation’, probably something like 60-80 years from the end of the economic crisis. Glass-Steagal and all that.
A lender violating these rules would be required within 90 days to modify or refinance the loan at no cost to make sure it meets the standards. Otherwise, the borrower could rescind the loan. A borrower would also have the right to sue companies that securitized the loan and sold it to investors, where the rules have been violated.
As my somewhat wacky uncle used to say when he’d leave: “We’ll sue you later!”
The credit risk of a securitized loan is born largely by investors, not loan originators. The legislation would require mortgage originators to retain at least 5% of the credit risk on loans they sell to third parties. The bill gives federal banking agencies the authority to set the level as well as leeway to make exceptions to the rule.
Good thing they are building in the ability to change the rules on the fly! Why even effing bother with rules and regulators? They’ve done such a good job leading us down this primrose path. Do whatever it takes to make people think the economy is fine so they’ll buy another flat screen TV to watch Flip That House. When you have a Nobel prize winner telling the latest empty suit that it’s bad if government make-work programs come in under budget – why even effing bother with the whole charade. Just carpet bomb the country with cash.
Exceptional situations are the breeding ground for bad laws, good to see this is no exception.
In a true free market you wouldn’t have to regulate common sense like this. But in a non-free (i.e. gov’t backed and guaranteed) market leads us to this sort of ridiculous nonsense.
I mean, really.. we’ll have rules now that lenders shouldn’t finance liar loans. We need that? Really?