It could be too late for some home owners already saddled with the growing cost of riskier loans, but the California Association of Mortgage Brokers (CAMB) wants to see greater protection for consumers who use the products to buy a home, refinance a mortgage or tap equity.
In an effort to create what is billed as the "highest standards of consumer protection in the mortgage industry" CAMB is pushing "An Action Plan for the Mortgage Industry, Regulators, and Consumers" in a 13-page report of "best practices" for mortgage consumer protection.
While some of the best practices require legislative action, others are related to provisions rolling out in new laws. Still others can be performed by mortgage brokers and loan originators now, should they choose to do so.
The practices are all aimed at giving consumers more information and education to help them better understand and prepare for so-called "nontraditional" mortgages. The practices also seek additional regulations and beefed up enforcement of existing lending laws.
Nontraditional mortgages, are most often adjustable rate mortgages (ARMS) that initially come with low "teaser" rates and include interest only-payments; options that allow borrowers to pay a variety of monthly amounts smaller than principal and interest combined; piggy-back borrowing (a first and second mortgage written at the onset of buying a home); stated-income loans with little if any income and asset verification, among others that include home equity loans with similar features.
The products can be useful allowing borrowers to buy a home (or qualify for a larger, more expensive home) they, perhaps, couldn't afford with a standard, less risky, fixed rate mortgage (FRM).
However, an increase in foreclosures following the rapid growth in the use of nontraditional mortgages, especially among the population of less creditworthy borrowers, has alarmed federal regulators who have begun to tighten requirements for those who want the loans.
CAMB would like to see California get tougher too.
Their best practices call for:
- Licensing loan originators and requiring them to submit to examinations, continuing education and criminal background checks, as do licensed mortgage brokers now. Mortgage brokers are typically licensed through the California Department of Real Estate. Loan originators need not be licensed if they work for a licensed broker or lending company which is regulated by the state's Department of Corporations.
- Updating mortgage informational brochures and key mortgage disclosures to address nontraditional mortgages and make the requirements of those disclosures uniform for all loan originators. Encouraging consumers to comparison shop across distribution channels by providing uniform disclosures no matter the loan source. Brokers in California have to disclose payments received from the lender but mortgage bankers need not disclose similar payments.
- Updating the Good Faith Estimate and Truth in Lending Statements to more fully disclose the long term financial costs of nontraditional loans.
- Focusing more resources on enforcing existing abusive lending laws.
- Focusing more efforts on consumer education, and financial literacy education introduced at a mass level through education curriculums prior to consumers making major credit decisions.
The proposed best practices come on the heels this year of new mortgage consumer protection laws on the books.
Assembly Bill 790 and Assembly Bill 2890 makes it illegal for Department of Real Estate licensees or an employee working under a Department of Corporations licensee to misrepresent themselves in their business, credentials, education, or even trade membership.
Senate Bill 1609 requires reverse mortgage applicants to receive independent advice about the pluses and minuses of the loans. The advice must come from a certified counseling agency that does not have a profit motive. Reverse mortgage documents must also be translated into the language of the person signing for the loan. It also blocks the practice of requiring reverse mortgage customers buy annuities.
