Mortgage Finance Blog

New Laws to Protect Consumers, Future Home Values

October 25th, 2011 6:33 AM by Diego Quintero

 Article first published as, "New Laws to Protect Consumers, Future Home Values," on Technorati.

From 2005 until about 2008, the mortgage industry was becoming a place where creativity was taking precedence over ethics. Large banks expected the large and mid-sized broker to maintain quotas for lending. The volume of funded loans became more of a focus than the quality of loans issued. In the "Report to Congress on the Root Causes of the Foreclosure Crisis," published by HUD’s Office of Policy Department and Research in January 2010, studies were cited to provide information to Congress concerning lowered underwriting standards.

When you stir these two components in a large pot, let’s say the size of the our great country, it produces a world-wide shock to investments and, well, you know the rest! We are living it!

The topic has been discussed a million times over. However, as opposed to assigning blame, lately the conversation is more about the changes taking place. Our politicians on the hill, Barney Frank and Chris Dodd have written the self entitled, Dodd-Frank Act to help consumers feel more confident in experiencing the American dream. There are lots of highlights that consumers can appreciate, of course, this is nothing different from what well-trained loan officers should have done all along, but now these are enforced.

To provide ethical loan origination services, a licensee must:

  • carefully assess the applicant’s needs.
  • educate the applicant about financing alternatives.
  • conduct a thorough repayment analysis.
  • suggest suitable loan products.
  • help solve problems that arise during the loan approval process.

While it may be tempting to simply agree with a borrower who wants to refinance in order to earn origination fees, a licensee must only promote the refinance when he/she is sure the borrower:

  • understands all costs and negative aspects of the refinance.
  • is able to evaluate fully the implications of the new loan.
  • still believes the refinance is the best course of action.

Borrowers are not the only ones to benefit from the proper matching of applicant to loan product. Lenders and mortgage-backed securities investors also benefit. Loans granted to borrowers who have the ability to repay are less likely to end up in default and thus do not contribute to the creation of undue volatility in the mortgage markets.

While these changes in ethics, procedure, and consumer enlightenment serve to protect our home equity and improve our economic growth, you will need to be prepared to submit much more personal information than in the past. For those who have begun a loan process in the last three years, you were already aware of that!

Take the time to collect your information, and expect to be questioned about the minor changes in your accounts, time on the job, income, it is all meant to protect you and ensure that your loan is well matched to your needs. Get educated about the process, call your trusted mortgage broker to learn more.

Your trusted mortgage professional,

Diego L. Quintero

Posted in:General
Posted by Diego Quintero on October 25th, 2011 6:33 AM

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