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Senate to vote soon on NC Home Loan Protection Act

 Submitted by Susan Luupton, Responsible Lending

Risky subprime loans have led to unprecedented foreclosures in North Carolina.  HB 1817 (NC Home Loan Protection Act)  was written to protect NC borrowers from these abusive home loans.

HB 1817 protects borrowers during the underwriting and origination process. It increases consumer protections against mortgage broker abuses and reins in abusive underwriting practices for rate spread loans (roughly 8-10% under current rates).  New protections for rate spread loans would prohibit prepayment penalties and require full documentation of ability to repay.  It also increases mortgage broker duties, includes yield spread premiums in the points and fees under existing NC law, and makes the lender liable for the acts of mortgage brokers making loans on their behalf.

HB 1817 is a compromise bill that has the support of the NC Banker's Association, the NC Credit Union League, NC NAACP, AARP-NC, the NC Justice Center, El Pueblo, the NC Council of Churches and the many other organizations that are members of the Coalition for Responsible Lending.

14 Comments

  1. J Turner

    July 30, 2007 at 3:05 pm

    This law has a lot of good qualities, but remeber it also makes it almost imposible to get a home loan in NC for subpime customers, it will have realling effects on the consumer, the reason the banks want this to pass because they are FDIC and have no duty to report anything to their customer. So always remeber what you ask for.

  2. P. Chilberg

    July 31, 2007 at 4:16 pm

    J. Turner hit the nail on the head. It has merits, but will eliminate 60-90% of the financing available to less then squeaky-clean borrowers, and leave only the Banks who are vastly exempt from the proposed legislation.

  3. A Whitman

    August 1, 2007 at 1:28 pm

    Turner and Chilberg are dead wrong on this. These are the same tired and fallacious industry lobbying arguments that are rolled out again and again when NC tries to rid itself of predatory lending practices, whether in small loans like payday lending or in the mortgage arena — access to credit will dry up, jobs will be lost, blah blah blah. The fact is that lenders will provide loans to qualified buyers. Qualification must be based on a borrower’s ability to repay the loan at the full interest rate, rather than at a “teaser” rate. Additionally, prior to tendering a loan, lenders will have to verify that the borrower has the resources he claims. It’s simply sound lending underwriting practice. A subprime borrower will still be able to get a loan if he can afford to repay it.

    The arguments of JT and PC lack cognition that providing a mortgage to a borrower who will ultimately end up in foreclosure is a detriment to him, his neighbors, (most) investors, and the counties and municipalities that pay for the externalities of the foreclosure process and the lost revenue from foreclosed properties. Who does win in such a situation? 1) brokers who took the money and ran, and 2) foreclosure scam artists who pretend to “help” struggling homeowners facing foreclosure.

    These reforms are not only good for the housing market, they will ultimately benefit the mortgage-backed securities market and our economy as a whole.

  4. A Whitman

    August 1, 2007 at 1:55 pm

    I cannot help but wonder, too, if “P Chilberg” might use some high performance driving skills to flee this argument. Could he be “Pete Chilberg”, loan officer for Eagle Nationwide Mortgage? More on Eagle in a moment…. Pete Chilberg’s loan officer qualifications and experience include time as a “sales associate” at “the World Renowned Bob Bondurant School of High Performance Driving.” Solid credentials, indeed. And anyone who knows how the mortgage brokering trade has acted during the last several years may find more than a touch of irony in the Eagle Mortgage website proclamation that “what makes Pete stand out as a Loan Officer is that he works on every loan application as though it were his own personal transaction.” I bet he does.

    Eagle National Mortgage is a wholly owned subsidiary of Eagle National Bank, which the Office of the Comptroller of the Currency (“OCC”, the federal bank regulator) ordered to stop payday lending in 2002. Eagle National Bank was engaged in payday lending with Dollar Financial Group using the “rent-a-bank” scheme, a circumvention of state regulation as federal banks cannot be regulated by states. Eagle National Bank had violated a Memorandum of Understanding entered into with the OCC and was engaged in numerous unsafe and unsound activities. An OCC examination found that: Eagle National Bank had risked its financial viability by concentrating in one line of business—payday lending; the bank had relinquished supervision of the program to a single third-party originator of payday loans; and the payday lending program was conducted on an unsafe and unsound basis, in violation of a multitude of standards of safe and sound banking, compliance requirements, and OCC guidance.

    “Eagle had effectively turned over the management of the bank’s main business to a third party, and then virtually ignored how that business was being conducted,” said [then] Comptroller of the Currency John D. Hawke, Jr. “The bank essentially rented out its national bank charter to a payday lender in order to facilitate that nonbank entity’s evasion of the requirements of state law that would otherwise be applicable to it.”

    I guess after the OCC shut it down and its payday revenue dried up, Eagle National Bank decided to move on to exploding ARM subprime mortgage lending. Good times!

  5. A Whitman

    August 1, 2007 at 2:04 pm

    J. Turner, are you a mortgage hawker as well, or are you just a soul whose intentions are good? If so, oh, Lordy, please don’t let yourself be misunderstood.

  6. Craig Onslow

    August 2, 2007 at 11:01 am

    HB 1817 passed the Senate last night, and just passed the House. Now it goes to the governor for signature. A victory for North Carolinians.

  7. M. Mallas

    August 2, 2007 at 3:15 pm

    Did it pass as submited or where there any changes???

  8. C Moskowitz

    August 7, 2007 at 1:04 pm

    Our forclosure rate in NC is very low compared to other states that have adopted this type of legislation. The market governs itself when it comes to high forclosure rates, and Minnesota has had so much fallout from companies going out of business that they are thinking about repealing the law. There are always going to be scam artists in any industry!! The majority of us are just earning an honest living, and we need stated income products for 1099 borrower. When lenders went to giving W-2 borrowers stated products, that was a stupid decision. It would have been better if they would have just put stipulations on who can get a stated loan product. Now everyone will just buy everything as investment to get around this new legislation!!!

    A Whitman probably represents the “Banks” that this legislation doesn’t effect!

    Thank God they did change the part about having to combine front and back end, and fiduciary duty!!!

  9. A Whitman

    August 8, 2007 at 4:56 pm

    Actually, I believe that bankers fit right between insurance companies and corporate lawyers (with the insurance companies being #1) in the ranks of who is worst. I am hoping that Congress will also enact strict regulations for national banks but I am not holding my breath. But because states cannot regulate federal banks does not mean that they should not regulate mortgage brokers. This isn’t some scheme by federal banks to get mortgage brokers out of the picture.

    Minnesota is not “thinking about repealing the law.” Where did you get that, C Moskowitz? Tell me who in MN is considering the repeal. Is there a bill? Has there been any debate on this repeal thinking? Has it been in committee? Um, no, there hasn’t. There’s no bill, no debate, no such thinking.

    Oh, and the foreclosure rate in NC certainly isn’t what it is in CA, MI, OH, or FL, but that is not because our mortgage brokers are inherently more honest. It’s a function of the facts that 1) we haven’t had the same level of speculation and price inflation in real estate as in FL and CA, 2) we haven’t suffered the same economic plight that Ohio and MI continue to suffer, in spite of the loss of thousands of manufacturing jobs here, and 3) we’ve had a darned good Commissioner of Banks here who is looking out for consumers.

    I represent the Banks? That is too funny. Yeah, here I am at my desk in Charlotte near the top of the Bank of America building. I just kicked off my Salvatore Ferragamos and threw my silk stockinged feet up onto my leather-topped my desk. In an hour, I’ll go down to my reserved parking spot in the garage, hop into the Audi and head off to my 3800 sq ft home where I’ll be met by my golden retriever, my trophy wife and my two towheaded kids. We’ll go inside and I’ll throw back a tumbler of 30-year single malt scotch whiskey as I head into the family room and wait for our nanny to finish cooking of my lamb chops.

    C Moskowitz, think for one second if you can. Everything I wrote in my previous posts mentioned principles in lending practice that I never once insinuated should apply only to state banks or only to mortgage brokers. I mentioned that national banks skirted the law with rent-a-bank payday lending schemes.

    If you are an honest mortgage broker, you should be able to make a living under this law. If you want loans made with phony income documents, fraudulent appraisals, and underwriting without regard to a borrower’s ability to repay, this new law is not your cup of tea.

  10. A Whitman

    August 8, 2007 at 4:59 pm

    M Mallas, I regret to report that it did not pass as submitted. There were amendments that affected the “escrow” provisions of the bill. The law is still a good one. We’ll have to wait and see how the escrow stuff plays out when the law is interpreted by the courts and the COB.

  11. J Russell

    August 9, 2007 at 6:12 pm

    A Whitman, Ultimately the borrower has to be responsible for what type of loan they take. You seem to be the type of individual who wants to blame everyone else for their financial mistakes. The markets are already correcting themselves and sometimes bad things happen to “good” people. Many people have lost their homes in the past and many people will lose their homes in the future. I find it funny that anyone who works at bank of America can talk to comment about “ethical” lending. Why don’t you go give some credit to people who are illegal aliens. At least the people getting sub-prime mortgages have a valid social security numbers. We already have one of the toughest mortgage broker laws on the books of any state. This was unneccesary and typical knee-jerk reaction of legislatiors who want to get tough on something to get reelected.

  12. A Whitman

    August 10, 2007 at 1:07 pm

    Blame everyone else for “their” financial mistakes? Laying all of this on the doorsteps of borrowers is misguided at best. First, let me say that I eat my financial mistakes — I don’t blame others. I am a sophisticated consumer with an advanced degree. I know that brokers, realtors, bankers and investment “experts” don’t always have a fiduciary duty to me, and our interests only align occasionally and coincidentally. That helps but it still doesn’t immunize me from crooks and liars — or from advertisers who spend money on sociological and psychological research to figure out how to manipulate consumers’ psyche so they can turn instinct against them to make a buck. And, by the way, I was being facetious about working at BofA.

    I think I know what you are driving at with the “illegal aliens” thing. But why not come on out in your tall white hat just so I can be sure. What do you care if “illegal aliens” are buying homes? Dowell Myers, a University of Southern California professor who studies immigrants’ upward mobility, and Harvard University’s Joint Center for Housing Studies both have determined that the housing market has been part of the foundation that supported the housing market (and, consequently, the economy that fed off of housing). And not all subprime borrowers have social security numbers. Some have ITINs. By the way, “illegal aliens” violations are CIVIL violations, not CRIMINAL violations. Those are like speeding tickets. That’s why we don’t provide attorneys to everyone who is accused, arrested and detained for being an “illegal.” You just don’t know your facts. Talk about knee-jerk.

    “Many people have lost their homes in the past and many people will lose their homes in the future.” Even if this were true (and it is NOT), it’s not o.k. In Wake County in 1983, there was one foreclosure notice. In 2006, there were 1173. Even if you consider increases in homeownership and population growth, there is simply no way that this would account for 1173 times more foreclosures in 2006 than in 1983. And don’t tell me Reagan is why there were so few in 1983. I may die of laughter! In the ten year period from 1-1-83 to 12-31-92, there were 950 foreclosure notices. We are now up to 800 in 2007 alone.

    “We already have one of the toughest mortgage broker laws on the books of any state.” OK, expound upon that. Instead of any empty assertion, give me the facts. Let’s hear how tough it was. Then I’ll say who was tougher and why. And I’ll say why it wasn’t tough enough. Let’s start here and now, though. Did brokers owe a duty to borrowers? Did brokers have to be licensed? Did they have to undergo continuing education? Did brokers have a “net tangible benefit” requirement? Did brokers have to consider a borrower’s ability to repay, or could they simply sell whatever they wanted without consideration of ability to repay? Did brokers sell borrowers loans with higher rates than those for which they qualified so they could tap into kickbacks, also known as “yield spread premiums?” Did brokers have to live up to a standard of good faith and fair dealing from advertisement to closing? Were brokers telling borrowers they were “working for you” when, in fact, they were not?

    I admit that I may be missing something here, but I challenge the notion that this foreclosure crisis is solely a function of borrower ignorance, stupidity, over-exuberance, or irresponsibility. I suppose, then, that any move to save the financial markets which are reeling from this disaster would be foolish, too. The fact is that there is ample blame to go around — to lenders who were hungry for loans they could sell on the secondary market without appropriately underwriting these loans; to Wall Street for its insatiable hunger for questionable subprime mortgage-backed securities; to brokers; and, yes, also to homebuyers who tapped into equity for specious reasons or sought I/Os & neg ams based on market speculation.

    Bottom line is now the US and global economies are looking pretty grim, and we need to find a solution. Check out Paul Krugman’s 8-10 op-ed on the situation. We need solutions yesterday. Even those homeowners who are in low rate 30 year fixed are going to suffer because of foreclosure induced housing depreciation. Retirement funds will suffer. Even people who are renters are going to suffer if the economy hits the skids. Consumer spending will fall (great for the environment, not so good for jobs). People who work in the auto industry at any level — manufacture or sales — are going to suffer.

    It’s time to look for solutions to this mess. This law is a part of the solution for NEW loans. Those already in loans are going to need help. Something is going to have to happen to increase market liquidity. That’s the facts, not some defensive mortgage broker’s screed based on my own pockets not being overfilled with other people’s hard-earned money from jamming people up.

  13. A Whitman

    August 10, 2007 at 1:09 pm

    TYPO CORRECTION: Dowell Myers, a University of Southern California professor who studies immigrants’ upward mobility, and Harvard University’s Joint Center for Housing Studies both have determined that IMMIGRANTS have been part of the foundation that supported the housing market (and, consequently, the economy that fed off of housing).

  14. J Russell

    August 14, 2007 at 4:47 pm

    A Whitman,
    Grow up and put on your big boy pants. Was Foreclosure invented this week. Check out you Funkin Wagnall from anytime before last week and see if the word is in there. Foreclosure is not a new thing. I should have known that you don’t work at bank of America because you don’t seem to know much about the lending process. Have you ever signed a mortgage loan package? Check out the stacks of paper that you have to sign to get a mortgage. It is about 6″ thick and it is done in front of an attorney.
    You also have a 3 day right of recission to also protect your rights.
    Lenders also have to put riders in there for adjustable rates and negative amortization loans. Ignorance is not a defense, if the borrowers are ignorant it is not the lender or brokers fault.

    Brokers aren’t fiduciaries to their clients and their broker agreements state this. North Carolina was the first to limit total compensation to 5%. HOEPA at the federal level allows 8%.
    The Mortgage Lending Act mandates that a broker must be licensed. It is funny that the banks don’t have to have individual licenses for their mortgage professionals (I guess they have a better lobby than the brokers) Brokers have to disclose Yield Spread premium on the good faith while banks do not. Brokers do have a requirement to do a loan with a benefit. Banks are regulated by the Fed so I guess they don’t have to have a benefit.
    Do you think every broker is evil??? Why all the negativity?? What do you do for a living?? I bet when you ask your boss for a raise you feel you are worth it. Why can’t a broker make a living??
    Why do you feel the banks are so great?? They invented redlining not the mortgage brokers. Also, I was tallking about illegal aliens, not people who immiagrated legally to our country. Again, grow up and realize that the housing market is huge and there will always be problems somewhere.