Our Oregon legislators are about to run amuck again - please contact your representative and senator and plead with them to kill Senate Bill 965
Regarding Oregon Senate Bill 965:
Here's an interesting article from the Oregonian. The Bill is receiving some criticism. However, it's been slanted to look like it's only coming from the mortgage lending community. Read it HERE.
I have also attached another brief commentary. It is very important that the lawmakers hear from folks outside of the lending industry. This Bill will have very real consequences for the housing market as a whole if it passes in it's current form. It will remove many viable loan options that buyers need. If you have other questions, please come talk with me.
Here are some "talking points" of what is contained in the Bill. If you'd like, I can provide you with a copy of the Bill in its entirety.
1. SB 965 has good intentions but unfortunately, this bill fails to focus on protection of Oregon consumers from "Predatory High Cost Home Loans", as originally intended. Instead the bill focuses on prime loan products that either the guidelines or DCBS classify as "non-traditional". As to subprime, the financial markets have already corrected to remove overly aggressive loan products or layering of risks from the marketplace. Gone are the $0 down, stated income loans to the fixed income borrower with marginal credit. Firms offering such loans are out of business, and the agencies that set underwriting guidelines for both the prime and subprime markets have made and are continuing to make conservative adjustments to lending standards.
2. SB 965 will force many small mortgage brokerage firms out of business, by eliminating the availability of or increasing the costs of state required insurance and bonding. SB 965 gives the Division ultimate authority over what underwriting guidelines are deemed acceptable vs. the actual lender/investors that fund, securitize, and service these loans. In both cases, these are decisions for which the mortgage broker and small mortgage banker has no control. They don't make the products, or the guidelines, or perform the underwriting. Moreover, SB 965 provides potentially severe penalties for violations of the arbitrary decisions of DCBS auditors, in reviewing the underwriting of individual loans. The potential risks that insurance underwriters will be concerned with include a private right of action on any loan going back as much as three years and the uncertainty that any loans originated in Oregon by lenders or brokers (other than exempted Banks and Credit Unions) may or may not be subject to future claims. The insurance and bonding companies that extend these specialized products to the mortgage industry see significantly higher risks associated with this bill and have already notified some firms of actions including: much higher premiums, higher net worth requirements, and outright withdrawal of the availability of policies within the State of Oregon. Without insurance and bonding coverage, firms may be forced to close, due to either statutory requirements or their inability or unwillingness to bear excessive risks.
3. This bill will have negative, unintended consequences in the conventional or "Prime" mortgage markets. It will limit access to quality credit products and increase rates for those Oregon consumers this bill is specifically trying to protect. Minorities, inner city, rural, elderly, and/or less educated consumers need the product availability and personal service that the mortgage broker provides. No banker is going to visit consumers at their home on a weekend, and be able to provide product and pricing options from multiple lending sources. Bank rates to consumers are already generally higher than those of brokers, who shop for the best rates for their borrowers from a wide range of lenders. Reduced competition is likely to send those rates even higher.
4. Limiting the prepayment penalties to 1 year on all loans will raise interest rates to the Oregon consumers this bill is trying to protect. 90% of all prepayment penalties are on sub-prime loans. Most sub-prime loans are designed as short term solutions allowing borrowers to access credit in times of great financial need. They use those loans and some time (normally two years) to restore their financial condition and credit so that they can ultimately refinance or purchase using prime loans. Raising the rates on those sub-prime loans to account for the shorter prepay penalty will increase the cost to the consumer during that critical time. The estimated rate increase for a 1 year vs. a standard 2-3 year prepay penalty on a typical sub-prime loan is .75% to 1.00% in rate. That is an additional $150 per month "penalty" forced on Oregon consumers on a $200,000 mortgage.
5. SB 965 puts the Division in the very dangerous business of setting underwriting guidelines for the industry. It is the job of the regulator to see that loans are done within the framework of regulatory compliance, focusing on disclosures to consumers and adherence to federal and state laws. It is the job of the lender to make underwriting decisions on individual loans.
To locate legislators' email addresses and phone numbers, go online to http://www.leg.state.or.us/ and click on "find your legislator". Input your home and/or business address and it will give you the names, email addresses and phone numbers of your lawmakers.