Following the recent mortgage fiascos that were so devastating to the economy-both on the consumer level of massive numbers of homeowners losing their homes to foreclosure, and on the level of major banks needing to be bailed out to survive due to holding so many worthless mortgages-there have been many changes in the law intended to curb some of the abuses in the industry. Some of these took effect in 2009, and some on January 1, 2010. Let’s take a look at some of the most significant changes:
* All loan officers and mortgage brokers must register with the government and disclose their background and disciplinary history.
* State governments are directed to establish licensing and minimum educational requirements for loan originators.
* Advertising deemed deceptive or misleading as to payments and teaser rates is prohibited.
* Mortgage lenders and brokers are prohibited from coercing or encouraging appraisers to misrepresent the value of a home. (This new regulation does not apply to FHA loans.)
* “No verification” loans are prohibited. (In the past, borrowers could choose not to disclose their assets and income, and lenders could still give them a mortgage, albeit at a higher rate since they were obviously higher risk loans. These loans were typically taken out by either people who had little in the way of assets and income and didn’t want to admit it-and who would therefore really struggle to pay off a mortgage, especially one at a higher interest rate-or people who had plenty of assets and income but were hiding them to cheat on their taxes.)
* All mortgage fees and relevant documents must be disclosed a minimum of seven days prior to closing the loan, and disclosures must be resent if the annual percentage rate (APR) changes.
* No fees except for a credit report may be charged prior to the borrower receiving all disclosure documents.
* HUD rules require all brokers and lenders to use the same universal good faith estimate forms and HUD-1 settlement statements.
* Mortgage payments must be credited on the date received.
* The borrower must be informed of any mortgage payment late fees.
Where there are laws, there will be ways around them, especially when those who write, enforce, and interpret the laws have heavy incentives to see things in a way that benefits those who already have the most. So by no means have things changed to where consumers can relax and know they’re getting a fair deal. But certainly at least a small step has been taken in the right direction against predatory mortgage lending.