by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
HR 3915 is referred to as the Mortgage Reform and Anti-Predatory Lending Act of 2007. It was introduced by Congressman Barney Frank of Massachusetts. I explored some libertarian thought about the bill here. I spent the last few days, perusing supporting messages, to discover if I might be mistaken. This is what I found:
The Center for Responsible Lending encourages support of this bill. Here is the letter they want you to write to your Congresspeople:
I am deeply concerned about the plight of 2.2 million families who have lost their homes to abusive subprime loans, or who will lose their home in the near future. Without stronger protections against predatory lending, the same conditions that led to this disaster will inevitably come up again. The Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915), which is based in part on existing state laws that have been effective, would help prevent another subprime disaster in the future.
Hmmm, well they fired a biased shot across the bow by referring to subprime loans (in general) as abusive. It lets you know that they despise any loan that isn’t an “agency” loan. The CRL also predicts that (a) more people will lose their homes (b) the disaster, left unchecked, will happen again. What they don’t tell you is that the innovative lending products added some ten million NEW homeowners to the ranks this decade. While 2 million foreclosures suck, a net gain of 8 million homeowners is nothing short of astounding.
The bill addresses many abusive lending practices that directly contributed to today’s foreclosures crisis, including reckless loan underwriting, abusive subprime prepayment penalties, and direct incentives for mortgage brokers to steer families into excessively expensive and risky loans. Basically, the bill would allow consumers to have greater confidence that subprime lenders will refrain from reckless lending and assess whether complex loan products are truly affordable for the families that receive them.
Ho ho ho! Reckless, abusive, and steering! Underwriting is to protect the lenders, not the borrowers. Here comes Big Momma to tell me I can’t hand out MY money to THIS homeless guy because he’s not deserving of it. When we seek to protect the irresponsible few by punishing the responsible majority, we encourage vigilantism.
Disclosure to borrowers: $350,000 IS a lot of money and you ARE expected to pay it back. Ask an attorney for an interpretation of that disclosure.
I urge you to co-sponsor this important bill, if you haven’t already. In addition, I urge you to support making the bill stronger for families who are victims of abusive subprime loans. When Wall Street demands riskier loans for higher returns on investments, it must accept its fair share of accountability. Stronger remedies and “assignee liability” provisions would ensure that victims have access to effective legal remedies, regardless of who owns their loan. Without adequate legal remedies and enforcement, the market will have less incentive to make real changes, and many of the protections included in the bill could become much less effective in preventing predatory lending practices.
Wall Street IS accountable for yield reaching; ask Stan O’Neal or Warren Spector. Failure is always the best disincentive.
H.R. 3915 includes common sense protections that responsible mortgage lenders have always used. Please make a decision to combat predatory lending and boost our nation’s economy by promoting sustainable homeownership.
Good grief! If there was ever an ode to victimization, this letter would be it. Irresponsible borrowers account for less than 5% of the households in America. We bandy about the phrase, “predatory lenders” too much. Predatory lenders are criminals- enforce the laws against fraud and throw those bums in jail. Irresponsible borrowers got drunk on the liquor of materialism. Let them suffer the malaise of foreclosure so that the principles of abstinence or moderation will prevail the next time they are tempted to borrow.
I’m not passing the buck- I’m laying the blame squarely where it belongs- on the pie-in-the-sky borrowers whose financial plans were based on third grade math and the greedy investors whose model relied on first grade math. Messrs. Miller, Watt, and Frank would do well to stop meddling in markets; 95% of the American public will suffer for the greed of the feckless few.
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Jeff Brown says:
The cynical thinking behind their pronouncements would be laughable if they weren’t so nearly evil in nature.
They remind me of the children who murder their parents, then throw themselves on the mercy of the court, asking for special treatment because they’re orphans.
Wow — that kind of gall is nearly unmeasurable.
November 3, 2007 — 12:23 pm
Geno Petro says:
B.B.
Greed is one of the 7 deadly, Ignorance isn’t. Those who got jammed up because of the former will just have to deal with the consequences, legal and otherwise.
Those unfortunate souls who got biten by a predator, well that’s just a shame and hopefully they have enough years left to rebound.
The rest of us will just have to wait it out, like one of those SoCal traffic jams.
November 3, 2007 — 4:52 pm
Eric Blackwell says:
My thought is that blame would belong in THREE places:
1) GREEDY and unscrupulous lenders WERE there. But yes, there are a lot of new homeowners. Some swung the pendulum too far. They are paying for their poor decisions now and will into the future.
2) Yes the ultimate responsibility for any contract lies with the individual. They agreed to buy a house for nothing down while in poor financial condition or they took on too much debt. No excuses. But Geno’s point about greed is well made. They are paying for their poor decisions now and into the future.
3) I would assert that our dear congresspeople try to insert themselves EVERYWHERE and NOT to try to fix things, but more for their own political grandstanding and gain. Please name me one problem that they have SOLVED…class? class? (grin) The might not be paying for their poor decisions now, but hopefully they will into the future…ho wait…they don’t have to live by the same laws that we do…
I don’t think it is practical to try to legislate out the sin of greed. Especially when the politicians trying to legislate it wrote the book on the subject.
Bottomline–there is plenty of blame to go around. It should be applied individually and not collectively IMO.
November 3, 2007 — 8:14 pm
Linda Slocum says:
Any comments on the H.R. 3915 provisions regarding foreclosure properties? H.R. 3915 states that “any successor who takes over the [foreclosure] property will have to honor preexisting leases. Tenants without a lease will have at least 90 days before being required to vacate.”
Will foreclosure sales, including auctions on the courthouse steps, require the disclosure of all existing leases, or will the investor/buyer be forced to accept these leases as an undisclosed liablity?
The provision allowing month-to-month tenants 90 days to move will also make it difficult for investors to turn these properties over quickly, since they’ll have to wait 90 days to get in and clean/fix the properties before they can even begin to market them.
Does this mean that we’ll be seeing more bank-owned properties?
November 3, 2007 — 10:09 pm
Robert Kerr says:
3915 is wrong in so many ways. But it’s also needed.
For the last 5 years or so, the credit industry has shown that commission checks are the primary concern. Ability to repay? Not a problem. No income? Go no-doc. Minimum wage job? Just take an exploding ARM, you can refi next year when your house is worth 20% more.
As a taxpayer, I’m ultimately on the hook for these abuses and I welcome any restraint on Lenders Gone Wild.
If 3915 doesn’t rein in the US credit industry (I have my doubts) expect more restrictive legislation down the pike soon.
November 4, 2007 — 12:58 pm
Jeff Brown says:
Robert — It’s either wrong in so many ways, or it isn’t.
Either we enforce personal responsibility on borrowers, and fraud for lenders, or we don’t.
The gov’t will not ever solve this by legislation. It’s another example of legislating morality, which has been the M.O. for our federal gov’t the last 60 years.
It’s like blaming only the man or the woman for a pregnancy. There’s only been on Immaculate Conception in all of human history — and the majority of the world doesn’t believe even THAT one happened. 🙂
The only thing the gov’t can do in this case is either have no impact whatsoever, or screw it up more than it already is.
The underwriting has been addressed. Micro managing at this point will yield what it usually does — chaos and unintended results.
November 4, 2007 — 1:08 pm
HR 3915 Mortgage Reform Bill Resources says:
I came across their website as well and was a bit speecheless after reading their position. I think your title summarizes my thoughts very well.
November 4, 2007 — 6:12 pm
Dave Shafer says:
The foreclosure rate for sub-prime loans is still way below 20%. So that means that over 80% of folks who wouldn’t be able to purchase a home through conventional financing were successfully able to using the sub-prime market. Now that is a successful program any way you look at it.
Of course the numbers would have been much higher if lenders and loan officers were pushing the fixed rate option in sub-prime mortgages instead of the 2-28’s and 3-27’s. But the lenders were getting big bucks for the 2-28’s and 3-27’s in the secondary market and the loan officers were given incentives to sell these products. I personally lost several deals because I insisted on the fixed rate option for my clients, while someone else sold them on the variable rate which was lower. At least one of these people I know lost their home.
So you have to give some of the blame to the customers who went for the riskier, but initially lower rate, variable loans.
Then there is the option arms which were heavily advertised (falsely in my mind), which have a very high foreclosure rate when compared to other conforming loans.
Bottom line, lots of blame to go around; wall street, lenders, loan officers and yes customers who signed those loan documents.
By the way the foreclosure rate for variable rate loans versus fixed rate loans in the sub prime market are 3 times as high.
Government regulation will only keep some people from home ownership, while unscrupulous lenders and brokers will still find ways to make money on the backs of their customers.
November 6, 2007 — 8:48 am
Lee says:
The craziest part to me is attempting to place the entire blame on the current housing situation on the broker who doesn’t even have the money or capacity to actually make these loans and only “brokers” them to the big guys. Countrywide is making news because they’re this great company that is going to renegotiate the adjustments on 80 some thousand of their customer’s ARM loans. Truth is, they currently have an almost worthless portfolio that cannot be sold because of the inherent risk so they’re renegotiating with the borrowers in attempt to make all these loans NOT be worthless in the open market and in hopes they will perform if there is a more reasonable ARM adjustment schedule- and suddenly they’re heroes for doing this. These are the same guys that due to own their greed, put out the product offering that hosed the consumer, usually underwrote and funded these mortgages with outragous ARM adjustments and negative amortization, paid up more money to the mortgage broker to bring those specific loan types, put them on their books and had every intention of unloading them but got caught up in market conditions.
November 7, 2007 — 9:54 am
Donny says:
So how did the vote turn out? Did it pass the committee?
November 9, 2007 — 2:11 pm
Brian Brady says:
Yep- it did Donny. Click the top link, in the “More on HR 3915” section of the article
November 9, 2007 — 6:29 pm
Steve says:
Since all the controversy is about regulating the mortgage brokers, no one is talking about the chilling effect of requiring full income documentation for everyone (I understand the virtue for subprime.)
I guess I can live without ever getting another mortgage, but knocking self-employeds out of the real estate market, especially now, seems like the worst of ideas.
For 20 years I’ve managed to never be late on a single mortgage payment despite not being able to document my income because as a self-employed person my ability to pay comes from (1)cash flow and (2) knowing how to manage my finances, while income is the number I try desperately to minimize since I pay hefty taxes on it. Now on top of having to convince lenders I can repay (which is going to be tough until markets find the right balance again), I have to meet federal regulatory standards… and we know lenders will be risk averse and interpet them strictly.
And there’s not even a debate about this.
My gut tells me this will be enough additional demand knocked out to turn a real estate recession into a depression… at least an extra 10% downside in prices on top of the current near free fall.
The usual insanity of government making things worse after the fact, and not a peep of discussion about it.
Stated income has been around for decades–seemed to work fine when it required signifcant equity, good credit, etc.
December 23, 2007 — 12:41 am