Mortgage Industry Needs More Introspection

Having been in the mortgage lending business for 20 years or so, we've seen a lot of things both good and bad. However, in the last couple of years the industry, as a whole, seems to have lost its way when it comes to handing out loans to under qualified borrowers. All you have to do is read a newspaper - or watch a cable business show - to be aware of the problems with predatory lending practices and skyrocketing foreclosure rates. Unfortunately, none of these issues stemmed the tide of lenders originating option ARMs and "No Doc" loans with reckless abandon.

We know you might be thinking this is no big deal and that these types of programs help get borderline buyers into the house they want. The problem is that outlook is a short sighted way of looking at things. All of these borrowers who are getting into trouble are going to be off the market for a couple of years at a minimum. And, as with anything in this great country, the government steps in to try and clean up the mess. Just take the state of Minnesota as an example. In April, their legislature passed the following new mortgage lending guidelines that will go into effect on August 1, 2007.

Lenders in Minnesota must abide by the following guidelines:

• Verify all borrowers' income - thus eliminating "No Doc" and "Stated Income" loans.
• Verify that borrowers can afford the mortgage payment at the higher rate on all ARMs.
• All Lenders including Mortgage Brokers now have the "Duty of Agency" to their borrowers.
• Prohibits "Negative Amortization" loans and bans "Prepayment Penalties".
• Document that a refinance loan has a "Net Reasonable Tangible Benefit" to the borrower.
• "Special Mortgages," like those provided by nonprofit or government agencies with favorable terms cannot be refinanced without the borrower going through a certification process by a certified housing counseling agency.

Now we're not saying these are bad things to help curb the problems. In fact, we wish more states would take similar steps to help clean up the mess. But, we'd be more impressed if our industry as a whole would take the lead on these issues and bring some sanity back into the mortgage lending process themselves.

• Subprime Mortgage Regulation
• Foreclosure Activity

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