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It's going get tougher to get a home loan in Minnesota

And it's not entirely a bad thing. While the real estate market has had a boom over the last five years, mortgage lenders have been looking for ways to GIVE away money. "Exotic" loans have become the buzz word in the mortgage industry. These are the interest only kinds of ARMS that lower the monthly payments of the borrower. These loans have made it possible for more people to quality for homes. I'm not a mortgage officer, but here is what I have seen happen. I have been meeting people who have been in there homes for 2-4 years, were unlucky enough to work with a banker who did not explain to them that over time the rates on those loans would go up, and so would the payments. There are people who are now stuck with payments they can't afford. I don't have a crystal ball, and am not a mortgage officer. But if history repeats itself, and it usually does, interest rates will continue to rise-and so will the number of people who can no longer to live in their homes because they didn't either didn't understand that their payments would go up, or they didn't want to. This likely means there will be an increase in foreclosures across Minnesota.

Enter Lori Swanson, Minnesota's new Attorney General. Before she even took office she formed a 12-member study group to work on legislative proposals that will require verification of a borrower having the ability to repay a loan, and more disclosure to consumers to understand the fees involved in closing a loan.

On the Down Side: Any time there are new regulatory requirements, they cost money to implement, and someone has to pay for them. It will be you, the consumer. My favorite example is Nursing Homes. They are the most highly regulated industry right behind the nuclear industry, and the cost is so prohibitive many need Medicare to be able to stay there. In addition, you'll have yet a few more pieces of paper you'll have to sign at closing!

On the Up Side: I'm jumping up and down and singing Lori's praises! As a Realtor I sell houses. This is how I support my family. However, I have seen the devastating effects of predatory lending and what a foreclosure does to a family. As a result, if buying a home means you don't know how you'll be able to pay for your car, buy groceries, or even go to a movie once in a while perhaps it's just not the right time for you to buy a home. As a licensed professional I can show you how waiting can cost you some money, but it also may help you avoid the devastation of losing a home you worked so hard for.

There are going to be people in the real estate industry that will bemoan the new regulations. I welcome them with open arms and applaud Lori Swanson's intention to protect consumer's from predatory lending.

Posted by Lisa Dunn www.TwinCitySeller.com on 01/11/2007 09:03 AM

Comments (17)

mortgages, loans, minnesota, predatory lending, lori swanson

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This post has been included in Minnesota Real Estate News

17 Comments on It's going get tougher to get a home loan in Minnesota

JAN

2007

It seems to me that too many people are just overloaded and can't absorb what they are told.

The continual challenge and duty I feel as an agent is to continually do a "trial close" on the Buyer's understanding. Gotta pull the old cranial dipstick and see if the comprehension is above the "Min" mark.

We have taken a fairly complicated legal endeavor and simplified it to the point that it turns into a stack of "Sign here. Initial there" paperwork in the Buyers' eyes.

We get production and the Buyer gets a blizzard of convenience.

This is in NO WAY a knock on Buyers, just an observation of the process.

In most cases, I think the term "predatory lending" is not the case. When markets are going up, people see and hear about the money they can make by owning a piece of real estate. It's the same with stock market bubbles. So they do whatever it takes to get a piece of the action. The greed factor kicks in.

I don't think it is the lender's responsibility to figure out if buying a home is a prudent thing for someone to do. The lender takes their calculated and pays the consequences if they screw up. Many people lucked out and bought at the beginning of the cycle and made a lot of money by cashing out before things started down again. The same "predatory lenders" are looked at as heroes to these people.

I think it is unfortunate and even ones that do go to someone who explains & educate the consumer: do not like what they hear. They move on to the next. There is always someone willing to take it! I do know of someone who is doing hard time right now because his foreclosure rate was higher than the area average. An investigation was done. A trial was had. He was found guilty of mortgage fraud. I do feel we will be seeing a ton of this in the near future.

People's lives are being ruined and they need closure.

It's great to see someone really putting their foot down and standing up for the consumer. We also try to educate our clients about the importance of balance in their lives, including financially. We have an awesome mortgage person that we work with, and she refuses to put someone into a loan that they don't fully understand.

As a Mortgage Professional who has not sold one "Option ARM" in the past 7 years, I agree with your comments. Yes, it's great to open the "American Dream" to as many prople as can afford it. However, part of that 'dream' is to be able to buy clothes, eat 3 meals a day, provide for your family, and not have fear strike you every time the phone rings, thinking it's the lender calling again.

There are many, many ways that people can afford homes without having to resort to "New Car sales tricks".

I have a curiosity about where things with this industry will be in ten years and also where the affordabiity index will be hanging.

Tim-"I don't think it is the lender's responsibility to figure out if buying a home is a prudent thing for someone to do."

We could debate this point endlessly, but what IS the lenders responsibility it prudent lending so that their ultimate customer (people buying the mortgage backed security, or the bank who decides to hold the loan) has a safe and sound loan in their portfolio. Our whole banking and secondary market soundness rely on those people upholding their fiduciary duty to underwrite sound loans.

The FDIC agrees...

Something to ponder - I wonder if there will be those found guilty of mortgage fraud even when the mortgages in question are paid off per contract?

Lisa - this is certainly something we are all seeing. I think some of the problems stem from the personal situations in whcih people have found themselves, sometimes through no fault of their own (divorce, lost job) and othertimes becuase of poor money management, tapping into equity, etc. I always talk with buyers, especially the new ones, about the importance of a personal budget to make sure that they don't overspend even though the bank has approved them at a higher level.

Tim - But isn't is also the lendere's responsibility to deteremine if someone, based on income, assets, credit and debt, is qualified and to be prudent in their lending, at least based on the information they can gather?

JAN

2007

Lisa, you have a good post here. Educating customers is the key. Hope this will not deter first time buyers in buying.

Good post, Lisa.. Rather than write a six paragraph comment, I write a follow-up article here

We not only need to protect the cosumer from preditory lenders, we also need to protect them from themselves. I have seen a few forclosures that involved consumers getting in over their heads with loans that were on the up and up.

As a Certified Mortgage Planning Specialist it is my duty to advise a client on the potential risk of there loan options. Some options have less risk, but they all carry risk. With all the disclousers that are required on loan products its almost hard to understand how a borrower does know that on a ARM product his rate will increase when it goes into it adjustment phase.

Bottom line it is a shared responsibilty of the lender and the borower to understand the potential of there loan product selection.

Lisa, all I can say to this post is that I agree. No humorous remarks. I see too much, in my travels about town, in my real world visits to the coffee shop, of the effects of predatory lending practices on their victims. It's amazing what one learns by just listening.

Jay

I agree education is important, but I wouldn't be so excited that attorney's and state goverment are so involved in Minnesota. All you have to do is look at North Carolina and Georgia for examples of people who are unable to buy homes because of well meaning laws that take away customer choices.

This is the system of government that we love in our country though, pass a well meaning law, make something that can actually do good illegal, and then complain later when people who then get passed over such as minorities.

Bottom line, you keep shutting down "Exotic" loans, or high end interest rate B/C loans, then you reduce the availability to reduced income and hard luck borrowers. I guess that's good for the "RICH", for they can buy more investment properties and soak their renters!

Hi gang, thank you for all of your thoughtful posts. Your comments on how invooved government should be is well taken. Unfortunately, when industries do a poor job of regulating themselves, the government gets involved. And, as I tried to express in my post, there are both positives and negatives.

I'd like to go on record saying I have had the pleasure of working with upstanding and OUTstanding loan officers. One of which worked with a client to clean up their credit after the closing of a home loan so the client could refinance into a loan that would work better for the client long term.

Karl-The concerns I have of homebuyers getting over their head with exotic loans don't really apply to the wealthy. However, consumer understanding of the loan product and how it applies to personal finances and lifestyle goals applies to eveyone. Certainly you can agree that if an interest only is 55% of a client's income, that's not a good indication of affordability. We all have a responsibility to educate our clients and help them understand the implications of loans. I'm not about removing consumer choices, rather increasing consumer education. Thank you for your post!

AUG

2007

i think its amazing that people blame the lender. every loan has a note which explains the loan details in two to three pages on how the loan adjust. If someone does not read the note they have no one to blame but themself.

By taking away stated income loans, your telling almost every person that owes a business you are no longer eligible for a loan. Most people that own business or rental property will not qualify for a loan since they usually show lossses on personal tax returns. By making it harder to borrow money will definately drive the real estate market down. Also as a side note, everyone that currently has a stated income loan and needs to refinance before thier loan adjust have just lost the ability to get out of the loan for a more faverable one. time will tell.

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Lisa Dunn www.TwinCitySeller.com

Minneapolis, MN

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