Ben S. Bernanke and his Federal Reserve have proposed new mortgage lending guidelines.
What They Say
1. Lenders must verify income and assets
2. Prepayment penalty restrictions
3. Lenders must determine if borrowers can afford mortgage
4. Borrowers to be told how much broker is making
5. No more misleading advertising
What I Say
1. Most of the time the average run of the mill mortgagee should have their income and assets verified i.e. full documentation. Traditionally this has been the modus operandi. The advent of reduced documentation loans was meant for specific borrowers because full documentation did not make the most sense for them. That is still the case, and for that small segment of the market...it will not change.
2. Greedy lenders dangled deceptively attractive terms to the "huddled masses yearning to breed green". There were a few catches, one of them was punitive prepayment penalties. In some cases lenders would charge a 3% or higher penalty if borrowers prepaid balances or refinanced to a better loan. I believe a prepayment penalty should be only high enough to compensate the lender for origination costs if a borrower refinances out of the loan or substantially pays it down before a break even point has been reached. A prepayment penalty should not be a source of profits.
3. Refer to paragraph 1.
4. Currently, the application and closing documents do disclose some fee information. How far do we go with this one? Mortgage professionals should disclose fees in much the same way as real estate agents do.
5. This goes without saying. How though can one quantify hype, hyperbole & hubris?
Any time a sector is hurting, that sector must take a look inward and make corrections to police itself or the government will step in and do it for you!
Of course the end goal of Helicopter Ben is to get the market pendulum swinging back to a healthy and properly valued real estate market. For this we are all grateful.
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Barriers to entry that are commensurate with the risk, expertise required, ongoing training, etc, would have been helpful. How about math skills? How about background checks? How about limits of on-line transactions? Something like a series 7 exam?
The reality is there should be 50% of the LO's and Realtors that currently are in the profession.