With The New Year, New Regulations Come Into Play

Jan 2nd, 2009 @ 4:56 PM by Alden Smith

With the coming of the New Year, many states are putting into place new rules for loan originators. Although this is locking the barn door after the horse has been stolen, it is time that states took an active interest in what banks and lenders are doing. Deregulation has most assuredly been seen to not work, and with the current economic turmoil, anything that can be done to help will be welcome indeed.

The Fed is doing a bit of work on this problem. They are in talks now to would prohibit lenders from making high-cost loans to people without verifying their income or assets. Why this has not been a priority before now is way beyond me. Research shows me that many people who were applying for subprime mortgages were able to sidestep this vetting. Lenders would also be required to set up escrow accounts to insure property taxes and insurance is paid. Formerly, many subprime lenders avoided this action.

Many states are adopting new rules, such as requiring brokers to take 18 hours of education courses every two years. They will also be required to take ethics classes. I see evidence of a national registry of mortgage originators, which will help weed out any criminals that have been convicted of mortgage fraud.

It is not as if the government hasn’t made efforts to weed out the crooks. In July, Congress passed the Secure and Fair Enforcement in Mortgage Licensing, or SAFE Act. It was created to establish ethical standards for brokers and create a coast-to-coast registry. One month later, the Miami Herald published stories showing how the Office of Financial Regulation allowed more than 10,000 people with criminal records to work in the mortgage industry. So much for regulation. The OFR insists that the news media overplayed these facts, but nothing has ever been wrong with calling a spade a spade.

In Florida, hardest hit of the states in this economic downturn, we see many new laws and regulations being put in place, as we see in New York, which has had its share of troubles. I wonder at the feasibility of each state making its own regulations and laws. I think it is something that should be decided by Congress, so that it applies across the board. Many of these laws do not go into effect until 2010. Who knows what may happen between now and then?

Posted in Mortgage Refinancing, Mortgages
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