Posted on 07/27/2007 7:34:04 PM PDT by RockinRight
In one of the biggest overreactions to mortgage lending problems, the State of Minnesota has passed legislation outlawing stated income mortgages. On April 20, the state legislature passed House File 1004 and Senate File 988 aimed at limiting abusive home lending practices. But did they go too far?
Oops, I Think the Baby Was in That Bucket
Requiring that borrowers must now document income and assets for all loans on primary residences and 2nd homes, the law prohibits the use of any Stated Income, No Ratio, No Doc, & No Income/No Asset loan. In other words, the only way a borrower can get a loan after August 1st is to show pay stubs, W-2’s, tax returns, and bank statements.
This would make it impossible for many self-employed people, not to mention those with income from unseasoned second jobs, notes or child support/alimony lasting less than three years, to secure a home loan. See my previous post on 4 Reasons to Keep the Wage Earner State Income Loan for a better understanding of this issue. Dumb idea? Yes, I think so.
And That Ain’t All
Minnesota’s bill also bans all negative amortization loans as well as prepayment penalties on loans of less than $75,000. It establishes an agency relationship for mortgage brokers with civil and criminal penalties to go along with it. Now, we can discuss the merits of suitability standards and penalties, but before you decide whether this legislation actually protects consumers or just covers legislators’ asses, read this:
“The agency duties above and the civil penalties specified below would not apply to mortgage originators employed by federally and state chartered banks and credit unions; since they have been exempted from these provisions in the proposed legislation.”
In other words, mortgage bankers are exempt. In grateful acknowedgement of the mortgage bankers’ lobbying efforts, huge campaign contributions, free trips, jet rides, massages, and you name it, Minnesota’s legislators once again exempted their corporate friends at BofA, Countrywide, Wells Fargo and the rest from any consequences of abusive lending practices.
Are You Kidding Me?
Sorry, no. This is a consistent theme over the years. Mortgage reform is invariably targeted at mortgage brokers. Why? Because they have more money, and we are taking away market share. Mortgage brokers have to disclose our fees and we can shop all the banks to find the best deal for our clients. The bank can’t shop and don’t have to tell you how much they’re making.
Kinda gives new meaning to the phrase, “No one can do what Countywide can.”
Can anybody tell me, what is an “unseasoned” second job?
If you have a second job that is part-time, and haven’t been there at least a year, or prefarably two, they don’t count the income from it...as part time, by it’s very definition, is tenuous and hard to calculate an income from.
Bank Statements programs are 99.9% subprime only. Even with a credit score of 700.
Not much, and I'm not even in Minnesota anyway. However, completely eliminating such loans, which came into existence because of self-employed consumers being unable to purchase homes, is going too far. Plus, I shy away from any sort of blanket regulation of the market.
Thank you, PSS, for a sound and sensible post and a story from the consumer side as to why this is bad legislation.
Also think about someone who is doing the exact same work, but went from being a W2 employee, to being paid a 1099 (which is considered self-employed.)
Traditional loans require two years self employed, so even if the above example made a million dollars a month, couldn’t get financing for two years regardless, even on stated income. That’s where no doc comes in to play. Of course said person has to have good credit, and there’s a sense of personal responsibility on both the part of the borrower and the mortgage representative as to whether their new income source should be sufficient...but again, this person is also stuck.
Good.
And if all the vultures who have been making a living off of undocumented loans are crushed in the process, double good.
So what?
As with anything, such privileges were abused. Undocumented does NOT mean illegal immigrants in this case (it can, but that's a different problem)...and that's what I think half the posters here are not realizing.
What do you do for a living, if I may ask?
No, there was a reason that loansharking was illegal, and for a long time.
No doc loans have NOT existed for a long time.
No, you may not.
But I'm self-employed.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Loansharking, and providing a real estate mortgage, at a decent interest rate, to someone creditworthy, but who can’t prove income, are as different as Peg Bundy and Julia Child.
You do realize that “no doc” interest rates are usually no more than 1.5 points higher than standard, right? You do realize that they still have to have a valid social security number and valid ID, right?? Well, 99% of them do, but that’s a different story.
If that was all there was to the mortgage mess, it wouldn't be a mess.
It’s a mess because it was abuse, and outright fraud was committed.
Something that can’t generally be prevented by legislation. Now they’ll simply find other ways to do it, i.e., straw buyers, faked tax returns, etc...
People with a propensity to commit fraud will do so. Passing laws to prevent it only hurts those who are legitimate.
It’s the same with gun laws.
Liberals. The rats don’t want anyone to work hard and get their own home. They screwed folks in order to come to the rescue with a govm’t provided solution that consists of using other people’s money to buy the houses.
Thanks. I hadn't heard that term before.
The only problem I have with this is that it does nto apply to all mortgage lenders. If you have filed taxes for the past 2 years you have documentation.
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