Real Estate NewsWill RESPA Re-drafts Leave Homebuyers with Less Access to Credit?
Closed-door negotiations between mortgage business leaders, federal
regulators and consumer groups could wind up denying millions of home owners
access to the credit they might need to make ends meet.
The housing finance industry, the Department of Housing and Urban
Development and consumer advocates are trying to reach a consensus on rewriting
the Real Estate Settlement Procedures and Truth in Lending Acts, laws they all agree are
woefully inadequate and out-of-date.
But to win their stamp of approval, consumer interests are holding out
for a major expansion of another law, the Home Ownership and Equity Protection
Act, which governs high interest-rate mortgages, the kind of home equity loans many owners
with less
than sterling credit turn to in hard times. And it appears that conventional
lenders and loan brokers are ready to cave.
Indeed, the National Home Equity Mortgage Association says it has been told its input in the discussion is no longer needed. "We were originally
involved, but when we said we were not comfortable with the way things were
going, we were cut out of the loop," says NHEMA"s lobbyist, Wright Andrews.
There is no doubt that some lenders have engaged in fraudulent lending
practices that need to be addressed. Among other things, unsuspecting borrowers
have been the victims of "flipping," or successive, repeated financings that drive loan
costs through the roof; loan-shark rates 2 1/2 times greater than what owners with good
credit pay; exorbitant finance charges; excessive prepayment penalties;
overpriced insurance; padded closing costs; phony appraisals, and illegal
kickbacks.
But NHEMA President Laura Borrelli says the abuses are not nearly as
widespread as consumer interests make them out to be. "We"ve all seen stuff
we"d rather not have seen," says the Montvale, N.J., lender. "There"s always going to be fringe
players who prey on people, but a certain discipline has now taken hold in the market."
Still, NHEMA supports legislation to protect consumers. But it wants to
see it targeted at specific abuses. For example, it would like to see mandatory
state licensing of loan brokers based on minimum federal standards, limits on
both prepayment penalties and refi fees, and prohibitions against lump sum,
single-premium credit life insurance.
But the plan to expand HOEPA that"s now on the table, Andrews and
Borrelli contend, would drive costs and rates out of the reach of borrowers who
most need to tap into their home equity. Andrews, in fact, says that"s one of
consumer advocates" chief goals. "When we tell them what they"re advocating
will limit credit," he says, "they tell us, "Good, that"s what we"re trying to
do."
Of course, consumerists are interested mostly in protecting vulnerable
borrowers -- typically the elderly and uneducated -- who don"t know how to handle credit.
But studies show that of the millions of people who borrow against their homes
every year, only 10 percent are over 65 and 10 percent earn less than $30,000.
Actually, the typical customer is in his 40s, and 60 percent have incomes
over 50 grand. It"s just that their credit isn"t so hot, so their home equity
is the only source of funds available to them. And for the most part, they use
it well.