Merkley, Klobuchar Amendment Banning Liar Loans Approved

Wednesday, May 12, 2010 at 4:57 pm

This afternoon, an amendment protecting mortgage consumers from predatory lending practices made it into Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill. The Senate approved the amendment by Sen. Jeff Merkley (D-Ore.) and Sen. Amy Klobuchar (D-Minn.) 63 to 36.

The new language prohibits mortgage lenders from receiving hidden payments when they sell high-cost loans and prohibits companies from giving loan officers higher pay for selling riskier or higher-fee loans. It also bolsters underwriting standards, making sure that homeowners can really afford their mortgages and precluding lenders from offering “liar loans” and “no-doc” loans.

“Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” Merkley said in a statement. “We took a huge stride forward today in the fight to restore fairness for homeowners and strengthen the financial foundations of our families.”

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Jim Wikey
Comment posted May 15, 2010 @ 7:07 am

The Merkley amendment is absurd, and is very destructive to the mortgage market-place, and to the consumer.
I’ve originated thousands of mortgages over my 32 years in the business. My rates and service have consistently been top-notch. I’ve had no regulatory problems and no civil actions of any kind. My customers return to me for their purchases and refi’s, and now they’re referring their children to me. I’m proud of my record and I’m proud of the benefits I’ve brought to my clients.
On any day my rates are from ¼ to ½ percent lower than what the big banks are offering (at the same fees). And most of the time my service will be better—because I’m a long-time professional and I know what I’m doing. And now the Big Bank/Washington cartel, along with sadly uninformed consumer groups, are shoving me out of business. You think you’re angry—I’m extremely angry.
I’m 62 years old and I’m very good at what I do. I will not work at one of the banks who are closing me down; because, 1) they’re the crooks who actually caused this meltdown in the first place, and 2), they are demanding more and more production from their loan officers and at the same time are paying them less and less.
Sure, there were unscrupulous loan officers making expensive and inappropriate loans to some unsuspecting borrowers in the last 5 years or so. The Big Banks and Wall Street were making billions of dollars on them (read ‘The Big Short’), and they were pushing for loan officers everywhere—including their own loan officers—to make more and more of these loans. People got into the business who were never loan officers before, and never should have become loan officers, in order to make the big profits promised to them by the lenders. But this Merkley amendment misses many actual facts:
First, about the so-called 'liar loans.' There was no reason to have these in the first place, because it's certainly not difficult for a borrower to provide a legitimate paystub and W-2, These were designed by Wall Street schemers and the Big Banks for the sole purpose of getting more loans to sell to unsuspecting investors. They knew, of course, that they were instigating income exaggerations, but that gave them more loans to sell.
Also–the stated income loans went out completely when the meltdown happened.
And in regard to steering people into more expesnive loans–there are no longer sub-prime loans available to 'steer' a borrower into. And most of this steering in the past had to do with loan officers who worked for a sub-prime company directly, not by mortgage brokers. The loans I felt the best about were those that could have been sub-prime, but I was able to make it a legitimate prime loan. I still made a good profit, and the happy borrowers would come back to me later, and refer their friends to me.
But, most importantly, the new revised Good Faith Estimate of closing costs, which we all are required to send to pre-qualifed borrowers, shows clearly what the lender/broker are charging for the loan. THIS AMOUNT CANNOT CHANGE, not even by $1, so we are committed to this fee. It’s more than an ‘estimate’, it’s a UNILATERAL CONTRACT. So the loan originators who ‘bait and switch’, or try to hide fees, are exposed.
The new Good Faith Estimate also shows clearly the ‘rebate’ (yield spread premium)—and it’s NOW A CREDIT TO THE BORROWER’S CLOSING COSTS. The YSP is no longer paid to the broker, it goes directly to the borrower. And this amount cannot change at all (after the loan’s locked-in), just like the lender/broker fees cannot change. This new Good Faith Estimate makes the loan costs very clear to the borrower, and we are legally committing ourselves to them. Please, before enacting even more one-sided legislation designed to destroy all of the small mortgage businesses in America, please give this revised GFE a chance!
The Big Banks and Wall Street have hundreds of lobbyists in Washington. The banks have for a long time wanted us brokers out of the business, so that they could have the mortgage business all for themselves. These lobbyists have Congress completely swayed to their side, either through the force of their huge numbers, or by their ‘campaign donations’, or both. We brokers, on the other hand, have maybe one lobbyist. We’re too broke to hire any more than that.
It really angers me that the Big Banks who designed these dangerous loans, and approved them and funded them, so that they could sell them on Wall Street, should get away with the propaganda they’re spouting. Please remember—BROKERS DID NOT DESIGN THESE LOAN NOR APPROVE THESE LOANS! Any bank, investor or Wall Street firm could have determined through their underwriting process that certain borrowers qualified for a better loan, or that some were being charged ‘too much’ on a loan. Those lenders are guilty of designing bad loans and then of approving those loans! Too make this whole debacle our fault is wrong (and absurd).
And consumer groups seem to swallow this hogwash completely. It’s really sad, because the consumer will be hurt tremendously by the elimination of mortgage brokers. By eliminating us, their competition, the banks can and will charge more and more on each loan—and you will never know how much you’re being ripped off, because we won’t be around to give you a competitive comparison.
to a degree not matched by any other business that I know of, you should be against the Merkely/Klobuchar amendment. It is blatant power play by the Big Bank/Washington cartel. It’s terribly anti-free market, and it will only hurt you, the consumer. And the Big Banks will have won again. It’s not right.

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Comment posted May 17, 2010 @ 8:29 pm

Dear Senator Scott p. Brown,

I write to you today as a small business mortgage professional, and member of the National Association of Mortgage Brokers (NAMB), regarding an amendment (SA. 3962) introduced by Senators Merkley (D-OR) and Klobuchar (D-MN) to S. 3217, the “Restoring American Financial Stability Act of 2010? which was approved. I have serious concerns with the amendment and fear it will harm small business and consumers nationwide. For the reasons below, I strongly urge you to oppose this, and any other amendment, that would treat origination channels differently, picking winners and losers in the mortgage industry.

I believe the amendment will severely limit a consumer's choice of how best to pay for their home by removing a choice of paying closing costs in the interest rate. It will also restrict me from legitimately and legally compensating my employees. Furthermore, the Federal Reserve Board issued proposed amendments to Regulation Z to prohibit steering late last year which was subject to notice and comments and addresses many of the issues contained in this amendment but in a comprehensive manner. That rule is in the final rulemaking stages. Congress should allow the Federal Reserve Board to continue reviewing comments and developing a final rule that will deter incentivized fees and steering consumers, while preserving mortgage originators' ability to receive compensation without creating an unlevel playing field between competitors.

I have been witness to great hardship as a small business because of the economic decline and its effect on the industry. Small businesses, the cornerstone of American economic prosperity, should not be penalized for helping consumers. The amendment will not only put small business at a disadvantage to larger lenders, but will inevitably force me to close my doors. Less competition in the mortgage industry will drive up costs and remove affordable options for consumers. In particular, low income, minority and rural community borrowers will be hurt the most because this amendment as it will remove competition from the marketplace.

I urge you to ask that the amendment be removed from the bill or fixed so that consumers will continue to have choices at the closing table and mortgage originator's will continue to serve consumers in their communities. Small business mortgage professionals like me will be forced to close their doors should this amendment be included in the financial regulatory reform bill.

Thank you for your time and consideration on this issue.


Dana K. Bain

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