Minnesota Mortgage Blog - MN Mortgage and Real Estate News

Feds sign off on new predatory lending rules

Saint Paul / Minneapolis, Minnesota: Yesterday, the Federal Reserve signed off on the much anticipated new set of predatory lending rules. While most legitimate lenders, brokers, and consumer groups applaud the action, it is more smoke and mirrors than any true fix. It looks like the government is doing something, but it is more akin to closing the barn doors well after the horses have left.

The new rules will cover only new loans, not previously existing ones. Additionally, the bulk of the rules would have really only effected the short-term lenders who jumped into the over heated mortgage market, caused a lot of damage, and have long since gone out of business and disappeared. Good lenders, following good lending practices will actually see little or no changes to how they operate.

The biggest change is the nationwide elimination for not only brokers, but also banks, of any no proof of income type loans. These loans were highly abused by both bad lenders and borrowers alike. The new rules prevent any lender from making a loan without looking at a reasonable proof of their income and ability to pay back the loan. Unfortunately, many legitimate borrowers (typically the self employed), will now be completely without any home loan options.

Another key point is the requirement of full disclosure of not only the principal and interest payment, but taxes and insurance too. This problem was highly noted in new construction, where builders, using the builders "preferred lender", focused on only the principal part of the payment. Many inexperienced buyers failed to calculate their ability to pay once you added insurance, association dues, and property taxes into their overall housing obligation. This problem really kicked in as many new construction buyers never realized, or were told that typically you only pay empty lot based taxes the first year or so, then taxes sky rocket up as they were now assessed the full improved value of the lot including the home. This could easily have added hundreds of dollars to their monthly payment.

Pre-payment penalties, which were mostly on sub-prime loans, and another highly controversial subject between lenders and borrowers will also be severely restricted, but not eliminated completely. Consumer advocacy groups wanted the penalties lifted altogether. Unfortunately, the side effect is that without the penalties, everyone may now have to pay more.

Finally, the new rules add more teeth to the existing advertising rules which bad lenders completely ignored, and to which the regulators allowed to be abused. Again, looks good in the press, but truely a meaningless action.

(c) Metzler Mortgage Group - www.JoeMetzler.com

Update:

Injunction against ban on trigger lists granted in Minnesota.

On July 30, 2007, a preliminary injunction was granted by a Minnesota U.S. District Court against Attorney General Lori Swanson, prohibiting her from enforcing a statute forbidding the sale of trigger lists. The injunction was a result of a suit filed July 17, 2007 by the Consumer Data Industry Association to ban enforcement of SF 0241 and companion bill HF 0211, which passed in May and were to become effective Aug. 1, 2007.  

The bills state that a "consumer reporting agency or any other business entity may not sell to, or exchange with, a third party, unless the third party holds an existing mortgage loan on the property, the existence of a credit inquiry arising from a consumer mortgage loan application when the sale or exchange is triggered by an inquiry made in response to an application for credit."  

"The sale of such sensitive personal information to companies that have no, or at best a tenuous relationship with the consumer, directly increases the chance that a consumer could fall victim to identity theft or be exposed to deceitful bait-and-switch schemes," voiced the National Association of Mortgage Brokers' position on its Web site. We are "also concerned by the sale and use of prescreened lists to market mortgage products to consumers through telemarketing. Therefore, we support restricting the use of prescreened mortgage lists to written solicitations only so that entities purchasing these lists are able to comply with the four corners of FCRA (the Fair Credit Reporting Act) and communicate clearly to consumers their right to opt-out.'" 

However, in court documents, the Consumer Data Industry Association claimed "the new law irreparably harms Minnesota consumers who want to receive firm offers that may save them money or provide beneficial credit opportunities, but who will not because the state of MInnesota prohibits reports that include the content that would lead to such an offer."  

The court determined that the bills were in violation of the Fair Credit Reporting Act, which "permits a lender to buy and a credit bureau to sell prescreened lists under certain circumstances," including a firm offer of credit, court documents stated.  

In response, Swanson argued that at least some of the lenders who purchase mortgage-trigger lists do not make "firm offers" of credit to customers.  

A telemarketer cannot meaningfully make a 'firm offer' to a consumer to enter into a transaction as complex as a mortgage loan  over the telephone.

While Swanson may be right, the court agreed that it would not give Minnesota the right under the FCRA to regulate mortgage-trigger lists. It would simply mean that those lenders - and perhaps the credit bureaus that sell mortgage-trigger lists to them - could be held liable under federal law for violating the FCRA.  

Court documents also indicated that public interest in the situation has been neutral, and we simply assume because there is little, if any public knowledge about triggers lists.

On the one hand, perhaps Minnesotans would benefit from enforcement of (the FCRA). On the other hand, Minnesotans have an interest, as citizens of the United States, in seeing federal statutes enforced. And while the state legislature apparently thought that forbidding the sale of mortgage-trigger lists would be in the public interest, Congress thought the public interest would be better served by preventing states from regulating in this area, thereby ensuring uniform national regulation of the sale and use of credit reports. 

As for Minnesota, an amended consent order to temporarily restrain from enforcing the bills was filed Aug. 21, 2007. The injunction will remain in force until the case has been fully and finally adjudicated on the merits. 

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Banned in Minnesota: Trigger Leads

One of the better pieces of legislation to come out the Capital this year is a law banning the sale of what are known as "trigger leads".

The new law prohibits consumer reporting agencies or any other business entity from selling or exchanging with a third party information that a person’s credit history was requested in connection with a mortgage loan application.

In other words, until today, any time you applied for a mortgage, or had a mortgage lender run your credit report, that information, along with whatever other data was available in your file (credit score, current address, telephone number, loan balances, etc.)  was immediately sold by the credit repositories - Experian, Equifax, Trans-Union, to all sorts of bad lenders from coast to coast. They would then use that data to solicit you for a loan, often using shady bait-and-switch tactics to trick you into doing business with them. 

The credit bureau's defend the practice by saying it gives more "choice" to the consumer.  The realtity is it was a money making(as if anyone would choose to be hounded by lenders who will try to trick them.)

It WAS a perfectly legal practice in Minnesota.  The good news is it no longer is here, and for the rest of the states, you can opt-out, so your name is not included in these trigger lists.

Though we have always recommended shopping for a mortgage lender to work with, this should be done on your terms, with a lender of YOUR choice, as opposed to someone who paid good money to get your name, then would say or do anything to recover their costs.

Trigger leads are a horrible practice, a breach of consumer privacy, and need to be ended nationwide as soon as possible. 

The Law

Sponsored by Rep. Kurt Zellers (R-Maple Grove) and Sen. Warren Limmer (R-Maple Grove), a new law prohibits consumer reporting agencies or any other business entity from selling or exchanging with a third party information that a person’s credit history was requested in connection with a mortgage loan application, unless the third party holds an existing mortgage loan on the property. Most of the law takes effect Aug. 1, 2007.

The law also contains provisions for:

• increasing the dollar amount and other aspects of the homestead exemption from creditors, and provides for inflation adjustments;

• prohibiting real property from being subject to execution under certain conditions involving the homestead or other property rights of non-debtors, such as the spouse of the debtor;

• modifying provisions relating to the sale of homestead property; and

• building contractors to bring action against subcontractors for contribution or indemnity. This provision is retroactive to June 30, 2006.

FHA changing MIP / PMI requirements effective July 14, 2008

FHA now cheaper, or more expensive to borrowers depending on credit!

FHA, as with many other lending options is switching to new RISK BASED PRICING. Risk-based premiums enable FHA to respond to changes in the market, like the recent implosion of subprime lending, by reaching out to higher-risk borrowers without having to raise premiums for all borrowers. Borrowers are better off, even with higher mortgage insurance premiums, because FHA insurance gives borrowers access to substantially lower interest rates than are charged for subprime loans, thereby lowering borrowers' overall borrowing costs.

Many of FHA's lower-income borrowers have FICO scores above 680 and would qualify for premium reductions relative to today's premium levels. In fact, as a result of the predominantly low- and moderate-income character of FHA borrowers, a larger number of low-income borrowers would benefit from premium reductions than would moderate-, middle-, and upper-income borrowers combined.  

The first number is the UP-FRONT MIP. The second number is the monthly PMI 

 Call Joe Metzler for all your MINNESOTA FHA deals at  (651) 552-3681

 Need all the details?

For easy reading, start at page 26....     http://portal.hud.gov/pls/portal/docs/PAGE/FHA/IMAGE_LIBRARY/5171-N-02%20RBP%20FINNTC%20TO%20PUBLISH%20%205-13-08%20.PDF