(Un)Fair Lending Acts And Your Loss of Rights (Also Called Predatory Lending Laws)

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Back in 2001 we changed directions. Originally we had been known as "Home of the American Dream". We enjoyed our reign as champion of purchases for homebuyers who could not find an affordable loan for which they could qualify. Following the challenge by President Bush to put 10,000,000 new families in homes by the end of the decade through providing lower closing cost, lower interest rate loans with down payment assistance our advertisement had our phone rang "off the hook".

Then came the "Georgia Fair Lending Act" designed to protect the ignorant borrower from the unethical lender. We were forced to end the American Dream program because "the act" (a) limited our number of resources from which we could obtain financing for lower end borrowers because many lenders ceased operating in Georgia and (b) made it impractical to do so much work for such a limited amount of income potential. We never wanted to make more than a bare operating cost on any deal but the GaFLA, as it is called, made it so that if the loan wasn't at least $125,000 or more you couldn't make just the bare minimum needed to survive and operate as a business which is now required to pay minimum wage to every employee whether commissioned or not (Fair Wage and Labor? Ha!), provide advertising to the public so the public could hear about our programs and our employees could close more loans, provide health benefits for our employees (VERY pricey), and provide FREE educational opportunities to our clients and prospects.

So we pretty much quit doing what we considered our mission work. We do not advertise this service any longer and have not for nearly 4 years. If you are "poor" (less than $50,000 annual household income) and you want to buy a home in Georgia for under about $125,000 - you can still call us but we will not be as anxious and pleased to help you as we would have in 2002. Your past governer, a litigating finance attorney by the name of Roy Barnes (http://www.barneslawgroup.com/) and a college history professor by the name of Vincent Fort , have made you an undesirable. Where we were once very happy and anxious to help you we no longer are able to freely do so because of something called the Georgia Fair Lending Act. Why did Roy Barnes want the act? I just told you - he is a litigating finance attorney.

It is not that we wish to charge excessively for our services to those in dire need. In fact, quite the contrary. In a time when some banks and lenders were charging 2 and 3 percent origination fees and making 5 to 10 percent yield spread or service release premiums we were charging maybe 1 origination point and making 1.5 in YSP. On an $80,000 loan that translates into 1,600 to 2,000 total for doing MORE work than we would on many $500,000 loans where the borrower has perfect credit, detailed book-keeping records and plenty of assets and income where we may make $5000 or more for more liability but less work.

We in the lending industry are painfully aware that the general population is clueless about the hours of stressful effort we burn and the amount of liability we carry to get every loan to closing. That does not, however, provide an excuse not to try and comprehend that it takes more effort to "do a loan" for someone who has poor credit, no bookkeeping or record keeping skills, patchy employment, bad payment history, etc. It is harder and more exhaustive of resources to fund little loans for risky borrowers than big loans for stable borrowers.

So, in the end, instead of government regulations helping "the little guys" what happens is the little guys just no longer get to play. Virtually every time "the government" gets involved in business you can bet the effect is going to be a net negative. So if your state is thinking of instituting a "fair" lending act you had better fight it tooth and nail.

Additionally it may behoove you to note that in North Carolina you can not refinance your home just because you want to or just because you need some cash out. Nope. You have to please the state before you can refinance your property. YOUR property. YOUR loan. YOUR wealth or asset management plan. You must have the North Carolina Government's "stamp of approval". Perhaps the most liberal (instead of providing you with the most conservative to prove my point) report which still proves the point by raw data, not necessarily commentary, is located at http://www.fanniemaefoundation.org/programs/hpd/pdf/hpd_1503_Quercia.pdf

"Those hundreds of honest brokers are precisely why it’s essential that we come to a mutually protective, mutually beneficial agreement on a predatory lending law in South Carolina. An example of where overreaching lending legislation has had a negative impact on everyday borrowers’ access to credit can be found across the border in Georgia. The Georgia Fair Lending Act is perhaps the stiffest predatory lending law in the nation, and it has had the unintended consequence of driving nearly all of America’s leading lenders out of the state, a mass exodus that has placed a near-crippling burden on thousands of small town brokers who rely on these financial institutions to fund the loans they make." Free-Times.com

Now do not get me wrong: There are sharks in the water and they need to be gone. But anytime we move toward socialism or government control of free enterprise you are going to have a negative impact. I do not personally know Roy Barnes although we grew up just a few miles apart. His office is about 3 miles from mine. He is probably an okay guy. But the bottom line is he is a litigating attorney and one of his favorite things to litigate, listed on his own webpage at http://www.barneslawgroup.com/ is ... predatory lenders. Basically he left the office of governor with the final act of creating himself a whole new list of opportunity in his free enterprise underdtaking.

I hate predatory lenders. I think where we differ is on the common sense view of what constitutes predation. In my opinion lawyers are far more predatious than the average lender. 

Education not Legislation! Education brings freedom where legislation brings limitations.

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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!

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Rainmaker
592,421
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Ken,

I love it, "Education not Legislation" twenty minutes ago I comented on Sean Purcell's Lies, Damn Lies and Affordability Indexes I wrot Sean:

Loans are tools and consumers should be able to use even the most exotic ones. When people exercise their right to choice they must also accept the required responsibility that comes with it.

I couldn't agree with you more about people having a right to set their own priories. I believe most of the problems, actually more complaints than problems, in most cases are because people forgot why they used certain non-conforming loan programs. People forget the benefits they enjoyed when it comes time to pay the piper.

People have to step up and do what's necessary now. The bigger issue is the very real potential for feel good legislation to punish our industry for the consumers lack of responsibly.

Their has been some real abuse and when it comes to light we need to jump in and help. We also need to educate the general public, for certainly like the YSP debate the uninformed masses will believe the finger pointers no matter how wrong they might be.

Ken, your subject is only slightly different but we're all the victims of this feel good legislation. The biggest victims are troubled home owners, because this drove a lot of good lenders out of high risk lending. Besides fewer lenders and higher rates there is the infamous pre-closings disclosures. The Section 32 notice that "you could lose your home if you don't make the payments" this helped noone, but a lot of politicians felt good. I've been in lending since 1969 and I've never seen a mortgage or deed of trust that didn't say you could lose your house if you don't make the payments.

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Jan 11, 2007 02:35 PM #1
Rainmaker
275,309
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator
Thank you Bill. As you can tell this is such a popular subject. Reflecting the non-caring attitude of the general public you see that Active Rain participants really could not care less. "It doesn't affect me so why should I care?" is the attitude. But, as you said Bill, it affects EVERYONE. Legislation, even when created with the best of intentions, always costs the general public in a reduction of freedom. Period. No ifs, ands or buts. Did you happen to read my article called Stop The Bleeding? You will like that one, too. Talk with you soon.
Jan 12, 2007 01:45 AM #2
Rainmaker
310,377
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

I was trying to say just this.

The government:  limits the revenue per loan AND requires lenders to pay the extra employees a certain amount.  That's called deficit operations and governments are famous for it because they really aren't accountable.

Ken:  Maybe you could get a "grant" for the charity work they expect you to perform.
Jan 12, 2007 08:37 AM #3
Rainer
10,732
Sean Purcell
CQ Financial Group - La Mesa, CA

Ken, could not have put it better.  It is unfortunate that you have had to live the lesson in Georgia.  Increased government is almost NEVER the answer.  As I commented on Brian's post  Lori..Leave Loan Guidelines to Lenders, no matter what rule, fiat or legislative morality you try to create, the one's who want to get around it will and the rest of us are left to suffer from the costs and mistakes inherent to having a cake made by butchers thousands of miles from the kitchen.

Jan 12, 2007 09:50 AM #4
Rainmaker
592,421
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Ken,

I looked at "Stop The Bleeding" you're right I liked it.

Would someone wake up Belonger, then we can start choir practice.

Bill

Jan 12, 2007 01:19 PM #5
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Rainmaker
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Ken Cook

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