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| NAR: More Is Needed to Stop Abusive Lending |
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(August 16, 2007) --
Abusive lending practices erode confidence in the housing market and strip equity from home owners, says the NATIONAL ASSOCIATION OF REALTORS®. To protect borrowers from deceptive or abusive lenders, NAR asked the Federal Reserve Board to adopt new rules that would address everything from prepayment penalties to the use of “teaser-rates.”
Among the major changes NAR proposes:
- No prepayment penalties. Eliminate prepayment penalties for all categories of mortgages, and if that is not feasible, bar prepayment penalties for subprime mortgages and other mortgages where abuses are found. “Borrowers and their families are often trapped in abusive loans when they can't afford to refinance because of high prepayment penalties,” NAR President Pat Combs says.
- Escrow for taxes. Require that subprime lenders mandate an escrow reserve for taxes and insurance. “This again will protect borrowers from large payments they can't afford and help insure they understand the total cost of their monthly mortgage,” Combs says.
- Low-doc loans used rarely. Require that “stated income” or “low-doc” are only used sparingly and in cases where there are mitigating factors. NAR called on the board to implement strong underwriting standards that would require all mortgage originators, not just subprime lenders, to verify a borrower's ability to repay the loan.
- Flexibility for life circumstances. In determining a borrower's ability to repay, lenders must be flexible to accommodate unique circumstances. “Lenders should have the flexibility to consider all relevant facts, including a borrower's income, credit history, future income potential, and other life circumstances,” Combs said.
“NAR believes that existing guidelines are not enough to protect consumers,” Combs says. “Fighting abusive lending is an important issue to REALTORS®. We not only want to help people achieve the dream of homeownership, we want to make sure they can continue to live it.”
Among other changes NAR recommends to the Fed: Adopt anti-mortgage flipping regulations that require lenders to verify that the new loan provides a significant benefit to the borrower; encourage lenders to use alternative credit histories for borrowers with little or no credit histories; require all institutional lenders to periodically report borrowers' payment histories to at least three national credit bureaus; require lenders to offer borrowers mortgage choices with interest rates and fees that reflect the borrower's credit risk; and, working with HUD, improve consumer mortgage disclosure under the Real Estate Settlement Procedures Act (RESPA).
“The Fed must act responsibly to protect consumers, and NAR pledges its support,” Combs says. “We champion the principle that all mortgage originators should act in ‘good faith and with fair dealings' in all transactions, just as Realtors® are required by NAR's Code of Ethics to treat all parties in the transaction honestly.”
Learn more by reading NAR's 8-page letter (PDF) to the Fed, which includes a description of each recommendation.
Earlier this year, NAR released its enhanced Responsible Lending Principles and has consistently encouraged federal banking agencies and their state counterparts to address abusive practices.
— REALTOR® Magazine Online
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| Reprinted from REALTOR® Magazine Online (http://www.realtor.org/realtormag), August 16, 2007 with permission of the NATIONAL ASSOCIATION OF REALTORS®. Copyright 2007. All rights reserved. |
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