Illinois legislators missing the point?

Some IL State Senators have been attempting to pass legislation banning negative amortization loan products & stated income loans for mortgage brokers (only).  They also want to make individual loan originators liable for loans that default.

Here are some concerns about the effectiveness of this legislation.  In the belief that criticism should always be accompanied by proposed solutions I offer the following.  By no means am I suggesting mine are best and welcome our community to comment with the hopes of forwarding our best combined effort to the state in time to create MEANINGFUL LEGISLATION on this subject.

Negative Amortization:

Problem:

Many federally charted banks will not be affected by this legislation.  Banks (not brokers) create loan products.  Brokers sell what banks offer.  Banks hire account executives to visit mortgage broker offices to promote their products.  When the government goes after drug cartels they use the street dealers to get to the top offenders.  Why are they using the opposite approach here?

Proposed Solution:

Treat all lenders equally.  If you don't want the product, prohibit bankers from offering it in our state.  If you can't touch them with their federal charters then take a 2 prong approach.  1. Push it up the ladder to congress to get to the federal charters. 2. Require all loans advertising negative amortization in IL to always clearly state the fully indexed rate in all advertising.  For Radio or TV require them to state it verbally instead of that nonsense small print at the bottom of the screen (quicken loan?).  Thank God for TIVO & High Definition!  Like anybody is really going to use it.  This needs to include mortgage lead generation services like LowerMyBills.com.  Their owned by one of the three credit reporting agencies and originate no loans themselves.  They (apparently) skirt around TILA & APR not being a lender.

Stated Income:

Problem:

Stated income loans were originally intended for self employed individuals & those paid largely in cash to resolve the conflict between keeping taxable income down and showing larger income for loan approval.  We all benefit from this approach by creating more jobs and helping to control inflation.  Think how much more you might have to pay to eat out, get your hair done, etc.. if cash tips were eliminated and all prices adjusted to pay servers equivalent after tax incomes.  The same is true for many other goods & services supplied in whole or part by small business.  Small business employs 2/3rds of America.  They are the "American Farmer" of the new millennium.

Proposed Solution:

Require Banks who want to do business in our state to offer comparable No Ratio loan programs with the same terms & LTV's as their stated income programs.  I don't know of a loan originator that wouldn't rather use No Ratio if the same LTV's were available.  This ties nicely into the final point.

Personal Liability for Loan Origination:

Problem:

Personal liability for loan origination takes the approach that loan originators are guilty of misrepresentation without any presumption of innocence.  I have borrowers telling me who they want to use for appraisals!  There are document forging services all over the Internet.  Who protects us from the borrower?

Solution:

Phase out stated income loans in favor of comparable No Ratio & similar products before adding personal liability.  Many contentious loan originators are simply unwilling to put their family's lives at risk when past clients mess up (again) then claim they are "victims" instead of admitting to mishandling their own finances.  Those with nothing to loose are most likely to accept this added risk of liability.  Is that who you want handling your personal documents?  Loan originators are already required to pass civil & criminal background checks - including fingerprinting!  How about those bank employees called loan officers.  Level the playing field before raising the bar any further.

www.MortgageAdvisor.info

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