California Governor Arnold Schwarzenegger, more or less fondly known as The Governator, signed seven mortgage finance-related bills into state law this past Monday. These laws are designed to cut down on fraudulent mortgage practices.
Senate Bill (SB) 36: regulates the licensing requirements for residential loan originators in compliance with the federal Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act.
SB 237: requires appraisal management companies (AMCs) and appraisers register with the Office of Real Estate Appraisers and subjects appraisers to the provisions of the Real Estate Appraisers’ Licensing and Certification Law.
SB 239: raises the crime of mortgage fraud from a misdemeanor to a felony and makes it easier for prosecutors to obtain fraudulent loan documents to investigate cases.
Assembly Bill (AB) 260: places restrictions on subprime loans and prohibits originators from “steering” borrowers, or encouraging borrowers to buy riskier loan products when they are eligible for affordable products. It also gives state regulatory agencies the authority to suspend or revoke the licenses of real estate lenders and mortgage brokers that violate the state’s lending laws.
AB 329: sets guidelines for reverse mortgages originated for elderly borrowers — those over 65 years old — requiring specific disclosures and offering counseling service referrals. Originators are also prohibited from selling other financial products to a reverse mortgage borrower.
AB 957: gives the buyers of foreclosed property the right to choose local escrow officers to complete transactions. It prohibits the seller of a residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller.
AB 1160: requires originators to provide borrowers with a mortgage summary document translated in the language the contract was verbally negotiated.
In case you haven’t seen it here’s the Chicago Tea Party video by Rick Santelli.
I live in a pretty wealthy area full of nice houses where the median price is around $1M, which to date has been pretty insulated from the housing price downturn.
So it was more than a little surprising to hear that some people in our area are lining up to get a bailout on their loans – some of which are Negative Amortization Interest Only loans. Whether or not they’ll be successful is questionable since the Refinance option is only for Fannie and Freddie owned conforming mortgages – however the Loan Modification component looks like it may help anyone. We have heard stories of people in this area getting their Jumbo(> $729K loans) written down to 3-4% for 30 years and in some cases principle reductions. Here’s the executive summary for the Homeowner Affordability and Stability Plan.
Most Americans are current on their mortgages and are paying their debts – many of them have taken big hits to their retirement savings account and other investments. I understand the idea that you want to prevent the blight of foreclosed houses in areas where there are no buyers. However in towns like ours and many others that are attractive to people – there are plenty of buyers out there – many of whom have been renting due to the recent housing bubble. By subsidizing people who bought houses they can’t afford – we are perpetuating artificially high housing prices and rewarding poor decision making and supporting the heads I win / tails you lose philosophy that promulgated excessive risk taking by Wall Street and Sub Prime borrowers. It’s the same problem – people saw no downside and if we use tax payer dollars to pay down million dollar mortgages – we are just continuing the problem.
If we allow markets to hit and clear at their natural prices – then we’ll create sustainable communities and healthy markets. If we do otherwise we create all kinds of incentive problems and turn everyone into a welfare seeker that is focused on how to get their bailout vs. how to contribute constructively to society. Some people may “lose” their homes (which in many cases they don’t have equity in), but people need somewhere to live so investors will buy the houses and then rent them back out for a profit, which brings private capital back into the markets – so people shouldn’t be homeless they just won’t “own” taxpayer subsidized houses.
What do you think?
I just read the NY Times article on a proposed “HomeOwner Rescue Plan” for people who’s houses are now worth less than their mortgages. In the both the article and the comments there are a number of people who say that unless this bailout happens, then millions of people could lose their homes or have to severely curtail their lifestyles and that this is un-acceptable in America. The main rationale seems to be that if some people bear economic pain then it could hurt everyone else. Some of the proposals include forgiving mortgage amounts that are above the current value of the house. The last time I checked the only people offering “pay what you can afford” plan are charities. If we start forgiving debts and freezing ARMs then we’re letting the US government into the business of re-writing private sector contracts. When Hugo Chavez in Venezuela nationalizes Exxon assets - he gets demonized…but if the US Nationalizes the debt of people who bought houses they can’t afford that’s saving the country?
There is and will be a lot of economic pain as a result of this mess, but it’s better that the economic pain is born by the people who made the bad decisions versus people who made good decisions and lived within their means. People who make good economic decisions tend to use resouces efficiently – if the US wants to maintain its position in the world, then we need to use our resources efficiently. It should be a net positive if we reward (or don’t punish) people who’s values and actions are aligned with prudent decision making and efficiency vs. the “I need it now” mentality that has been at the fore until recently.
Reminder to self – blog on the Marshmallow Test in the near future
There are plenty of people in the US that used the loose credit environment to take on debt that they could not afford, so that they could live an unsustainable lifestyle. That’s their decision – but I shouldn’t have to pay higher taxes, so to pay off their new Lexus or whatever lifestyle choice they made. If someone didn’t take the time to understand the loan they were getting – well – tough cookies – hopefully they’ll learn a lesson and won’t make the same mistake next time.
Let’s not forget that the vast majority of people out there are not going to lose their homes. If some people lose their houses – well there are lots of renters out there that I’m sure would be happy to buy them up at rational prices. If housing prices come down – well then more people can afford to buy houses. There are plenty of people out there who have been waiting to buy houses at prices that won’t keep them in debt the rest of their lives – just because some people decided they couldn’t wait that doesn’t mean I want to pay for their house/car/RV/Vegas vacation/etc.
It’s better for us to clear out this mess all at once – if the government tries to bail out homeowners – it will just extend the period of pain before this is worked through and re-direct the resources of the productive prudent people in this country to subsidize people who paid irrational prices for their houses.
Below an interesting chart to put housing prices in perspective.
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How Much Money You Can Get for a Reverse Mortgage Will Increase and Qualifying for a Reverse Mortgage Will Get Easier with the FHA Modernization Bill
The FHA Modernization Act is designed to improve the Federal Housing Authority’s ability to help Americans obtain safe and affordable home loans and many see the Act as an answer to some of the woes of the subprime debacle. The Act is a bipartisan measure and has the support of the Bush Administration as well as both consumer and industry groups.
S. 2338, the Federal Housing Authority (FHA) Modernization Act, is good news for borrowers interested in a Reverse Mortgage. The Bill has been passed by the Senate by an overwhelming majority (93 to 1) and many hoped that it would be tacked onto the Economic Stimulus Package and be signed into law this week. However, it was not and is now waiting to be voted on by the House of Representatives. The House version of this Bill differs in many ways, but on HECM Reverse Mortgage issues, the House and Senate versions are identical.
The FHA Modernization Act Will Improve the Terms of Reverse Mortgages
The FHA Modernization Act will change the HECM program (HECM is the most popular type of Reverse Mortgage) in the following ways:
- Offer a Single National Loan Limit: Currently the actual amount you can qualify for with a HECM Reverse Mortgage varies depending on your county. The FHA Modernization Bill sets a single national limit of $417,000.. For most borrowers this means more money is available to them.
- Eliminate of the Authorization Cap: Currently only a set number of Reverse Mortgage loans may be granted. The FHA Modernization Act eliminates this limit, enabling the FHA to authorize as many loans as the market demands.
- HECM Could Be Used for Home Purchase: Currently Reverse Mortgage borrowers must reside in their home for at least one year before they can get a Reverse Mortgage on it. The FHA Modernization Act enables borrowers to actually purchase a home with a Reverse Mortgage — assuming an adequate down payment. This change makes a Reverse Mortgage an appealing loan for retirees who are downsizing and others.
- HECMs Could Be Used on Coops: Currently only single family homes are eligible.
As a whole, these changes should mean more money and better terms for seniors doing a Reverse Mortgage.
Learn More About FHA Modernization and Contact Congress Now
If you wish to see the FHA Modernization Act become law, consider contacting your Congressperson. You can locate them here: http://www.house.gov/
To learn more about The FHA Modernnization Act, visit here:
http://www.opencongress.org/bill/110-s2338/show
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