Smart Borrower Blog

Mortgage Lenders Beg for Exemptions

Nov 10th, 2010 @ 3:20 PM by Amber Nelson

The Mortgage Bankers Association sent out a letter Tuesday to 8 different government departments urging/pleading with them to go easy on the new mortgage lending restrictions that will be put in place no later than spring of next year.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) will require mortgage lenders to retain a 5 percent stake in all non-exempt loans that are sold off to investors. The idea was to ensure safer lending by giving lenders something to lose if loans sour. Obviously lenders are not crazy about the idea and now the MBO is pushing for a very broad definition of “non-exempt loans.”

That definition “will largely govern who can and cannot achieve homeownership for years to come,” wrote MBA chief executive John Courson in the letter, as quoted on the Wall Street Journal blog. “Few loans to ordinary customers are likely to be made outside the QRM [qualified residential mortgages] construct; the loans that are made will be costlier and likely to be made only to more affluent customers.”

So the MBA is arguing that the following loans should be exempt from the new 5 percent rule:

  • Adjustable-rate mortgages with an initial fixed payment period of at least three years.
  • Interest-only loans (where borrowers pay no principal for several years) as long as borrowers are able to make the higher payments once the initial period is over

What’s wrong with this picture? Alys Cohen, staff attorney at the National Consumer Law Center in Washington, says these loans are “exactly the types of loans that caused the foreclosure and economic crisis,” rendering the new legislation pointless. Which is perhaps the aim of the MBA, but c’mon do they really think that lawmakers will allow interest-only loans, the exact product that created so many underwater homes from the get-go and caused so many of the early foreclosures? Good luck with that one MBA.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to and

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