Congress Deregulating Mortgage Lending – Will Lead to More Bad Loans

Here we go again. Every twenty years this country suffers through a serious financial crisis, usually based around real estate lending. Why? Because of bad lending practices. Why are there bad lending practices? Because Congress keeps softening or eliminating mortgage lending regulations. Why does Congress do this, even when they know the consequences? Funding – big banks and lending institutions fund most of our politicians. Why do lending institutions want relaxed regulations? Because they can make more loans. Why do they want to make more loans? Because they are paid a huge commission from each loan. Why does the bank want huge commissions? Because it puts more money into the shareholders pockets and justifies huge bonuses to the upper management. So is this insanity ever going to stop?
Point in fact: In November, 2015 Rep. Andy Barr (R-Ky.) introduced The Portfolio Lending and Mortgage Access Act (H.R. 1210), which passed the House by a 255-174 vote. The bill is intended to give all banks and lending institutions the same exemption meant for small and rural banks to all banking institutions.
So what is the problem you ask? Perhaps a little history will help. The reason the real estate lending market collapsed was due to little or no regulations governing mortgages. In late 2011 the Consumer Financial Protection Bureau “CFPB” was established with the goals of putting some sanity into the lending market and to protect consumers from unscrupulous lenders. In 2013 and 2014 the CFPB issued regulations that, in order for a lender to obtain a qualified mortgage status, they were required to make certain a borrower has the ability to repay (what a novel concept).  So what is benefit of a “qualified mortgage status“? The lenders who follow strict guidelines are provided “safe harbor” protection from federal penalties and lawsuits brought by borrowers who have defaulted on their loans.  Except small and rural banks do not need to follow the ability-to-repay rule.  H.R. 1210 would expand this limited exemption to all banking institutions. Hence, my statement about “here we go again”.
Proponents argue that the bill has a safety valve – if the lender makes a bad loan the lender must keep the loan and cannot sell it to the secondary market or securitize the loan. The message is that a lending institution has a right to make loans without concern over the borrower’s ability to repay, because that institution will be stuck with the loan forever.
What the proponents do not address is what happens when the insolvent lender closes their doors with hundreds or thousands of “bad loans”. Those loans will have to be absorbed by the lending market (aka Countrywide).
What is the real problem? CFPB is taking strides to control runaway creditors: banks, savings and loans, vehicle lenders, payday loan companies, plus many more. No one agency has done as much in a very limited time to speak for the consumer. Rep. Maxine Waters (Calif.), the top Democrat on the House Financial Services Committee, warns that “the bill undermines the anti-predatory lending provisions of the Dodd-Frank Act and virtually eliminates one of the most significant consumer protection rules implemented by the CFPB.”

The post Congress Deregulating Mortgage Lending – Will Lead to More Bad Loans appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.