States Regulate Mortgage Lending

Feb 7th, 2008 @ 11:41 AM by MortgageMentor

While the discussion drones on in the U.S. Congress about the proposed economic stimulus bill, there are several states trying to regulate their own reform.

Some of the changes in the reform bill proposals make you wonder why there is opposition. For example, in Oregon’s Senate Bill 1090, proposed by Sen. Ben Westlund (a Democrat), these are some of the issues that have been most discussed :

• Eliminate penalties for borrowers making early payments on subprime and nontraditional loans
• Require creditors to verify borrowers have enough income to make their payments.
• Limit incentives that brokers get when they sell a high-rate loan (called yield spread premiums).

Most mortgage professionals are not backing Senate Bill 1090. They say that the market itself will change to eliminate risky loans — in fact, they say, it already has. Because the legislature can control the state-regulated brokers, but not federally regulated banks, many fear that the bill will eliminate their jobs. A better fix, they say, is to regulate broker who are known to create problems and help consumers better understand their loans and payments.

In California, where one bill was defeated last week, Sen. Mike Machado has his own ideas. While he acknowledges that his proposal will not help those already in foreclosure, he hopes to protect other people from getting caught in it.

His proposed Senate Bill 1053 would require every Department of Real Estate licensee in California to report their activities on an annual basis. The bill would also require submission of detailed compliance reviews of books and records by supervising real estate brokers.

Under SB 1054, people who violate real estate laws as well as ethics could be barred from working in any real estate-related field for up to three years. (Currently, they can only be stopped from working directly in the real estate profession.) It would also stop agents who give the property value to a lien holder from being the listing agent on that property for one year.