HR 3915: Its Passing and the Message Conveyed

Mortgage and Lending with Freedom Lending

Market Update


Cyrus Khadivi

HR 3915: Its Passing and The Message Conveyed


We all know our economy has drastically been affected by the mortgage turmoil and the deterioration of credit. So naturally, everyone wants to suggest cures to the ill that has plagued not only the U.S. economy but a global economy.

Some solutions have been very sound and reasonable. Some have been absolutely ridiculous. It seems the ones that are most reasonable usually come from the unsuspecting normal citizen; the ones that are most outlandish stem from those who have a bias, or their hand in the pot at the end of the mortgage rainbow.

For instance, one good and reasonable solution came from a economic student turned mortgage broker (honest/ethical). His suggestion was to simply freeze all adjustable rate mortgages. This is a very simple yet sound suggestion. We could simlpy pass legislation that suggests and enfores a freeze on all adjustable rate mortgages set to adjust in the future. The ones that have already adjusted could and would and should be re-evaluated by the former lender to save the homeowner's home. This would actually be an effective remedy for a few reasons. For one, it would preserve someone's home. The shelter a consumer uses would be retained. For government purposes and enjoyment, taxes could still be paid. Lenders would still collect the money due per month. This, again, came from a simple young man who actually studied economics.

The other end of the spectrum comes from government officials, who are obviously receiving motivation from the big banks. Motivation can come in many forms: lunch, career advances, cars, vacations, boats, and the oh-so friendly green dollar. We must admit that the banks of this country are one of the largest, if not THE largest, economic bullies. They profit massive amounts every single minute, day, week, month, year. They have the power to do what they want; they can even produce, print, distribute, and control money. What a concept, right? Well, these big banks have lots of power and influence to motivate legislators and government officials. So what does someone who is biased suggest as a cure for this economic ill?

They suggest a bill coined HR 3915. It as a whole does not make much sense. It seems like a lot of jargon that is against predatory lending and against the incentive of over-charging consumers with mortgages. However, this is a bill that is set to only affect mortgage brokers and not banks, such as the oh-so ethical and honest Countrywide. So while the broker will no longer be able to receive a yield-spread premium from a loan and be able to give a client a cheaper loan upfront (potentially), big banks such as Countrywide can continue to operate with high rate loans with no result from HR 3915. Why?

Well, Countrywide is a big operation. Imagine: the large offices with premium coffee has to be paid for by someone. Who? The consumer! The borrower! So while a borrower may truly qualify for a loan at 6% with Countrywide, he or she will really get a 7.5% and Countrywide will get the yield spread premium with no problem whatsoever since HR 3915 only affects mortgage brokers.

Now, I am not complaining. This may actually clean up the industry and cleanse those loan officers who were gauging poor borrowers by sticking them in high-risk and volatile loans with huge prepayment penalties. It may rid the industry of those who were never really qualified to handle one of the largest debts of an average citizen; it may even bring back integrity and quality back to this industry. I actually have no problem with it for that reason. I myself have always gravitated to giving a borrower the BEST and lowest rate they qualify for with no yield spread premium. I prefer to do that and simply charge a cost for it, still giving someone the best possible product available.

But my ultimate problem is with this proposed solution. It is NOT going to fix things. The fix is so much bigger, and has to come from the top. As of now, it will only fix the ones at the bottom of the trickle. Imagine a waterfall with the banks and government at the top; now imagine, at the bottom exists mortgage brokers, appraisers, agents, etc. The cure must occur at the top. The guys at the top will continuously change things to only keep profits to themselves while deterring competition and a true level playing field. That is what this bill will do. Will the banks be governed or controlled? No. Will the little guys at the bottom? Definitely. Will it do much good? Not really.

If these high risk loans and programs were not so profitable for the banks and ultimately the government, who now could offer home ownership for every American out there (ability to afford it or not), they would have never been existent. However, the government and big banks knew how risky they were all along; no one is that oblivious. Allen Greenspan even announced in a Fed Meeting to the American public that adjustable rate mortgages actually made sense for a lot of Americans. Why? Because there was probably some motivation.

My point people is that change must occur within the system, and the corruption must be radified. There must be an internal cleansing at the top of the totem pole, which is headed by the big banks and government. We are only creating a short term fix by proposing these bills. They will only steer the dirty loans to another avenue (e.g. FHA) and really not change the big picture of monopoly, corruption, and economic turmoil.

This is my humble opinion. Until next time, have an excellent day and God Bless!


Cyrus Khadivi
Managing Partner

Freedom Lending Group, Inc.






Copyright 2008 Cyrus Khadivi. All rights reserved.

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