Wednesday, June 18, 2008

Go Ahead! Overextend Yourselves, Be Irresponsible! We Will Bail You Out!

Now moving through the House, an eleven bill package. This package of legislation seeks to curb "predatory" lending practices related to home mortgages. It defines "high cost" loans and places additional compliance and judgment responsibilities on mortgage brokers and lenders, but exempts depository lenders such as traditional banks and credit unions.

This package would greatly alter the nature of the role of brokers or lenders by forcing them to make subjective judgments about whether a loan is "reasonably advantageous" for a borrower or whether a refinancing loan would provide a "net tangible benefit" to a borrower. In effect, the broker or lender would assume an unprecedented fiduciary responsibility. The potential for conflict arising from these subjective judgments and subsequent interpretations would cause the
sources of mortgage money to simply avoid Michigan.

A borrower could default and claim that a loan agreement was not "reasonably advantageous" or did not provide a "net tangible benefit" as directed by the act. The broker or lender would then be subject not only to a potential financial loss, but also civil and criminal penalties.

This package would effectively end the availability of sub-prime or non-conforming mortgage loans, even for consumers for which such loans are a viable option for achieving home ownership.

The foreclosure crisis in Michigan is also a product of tough economic times which are also affecting many traditional or conventional mortgages. This package does not address the underlying economic problems that created much of the crisis.

The package unfairly exempts depository institutions such as banks, savings banks and credit unions, and would potentially increase their market share of mortgage lending, especially if they become more active in sub-prime, non-conforming or non-traditional mortgage loan products.

The assumption here is that those who are in this difficult situation are somehow victims of unscrupulous or predatory lenders. Certainly that does happen, but in most cases they are only victims of their own poor judgement or flat out greed.

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