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Minnesota Overreacts to Mortgage Abuse (Oops, I Think the Baby Was in That Bucket)
Lending Clarity (mortgage industry website) ^ | 07/25/2007

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.”


TOPICS: Business/Economy; News/Current Events; US: Minnesota
KEYWORDS: minnesota; mortgage; overregulation
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To: RockinRight
there was a reason in THE MARKET... that such loans existed and for a long time

No, there was a reason that loansharking was illegal, and for a long time.

No doc loans have NOT existed for a long time.

51 posted on 07/28/2007 8:38:11 AM PDT by Jim Noble (Trails of troubles, roads of battle, paths of victory we shall walk.)
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To: RockinRight
What do you do for a living, if I may ask?

No, you may not.

But I'm self-employed.

52 posted on 07/28/2007 8:39:00 AM PDT by Jim Noble (Trails of troubles, roads of battle, paths of victory we shall walk.)
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To: RockinRight
Exactly. I wouldn't be able to have bought my home with what Minnesota outlawed. Real sweet of them to limit people's mortgage product choices because there are abuses. Its like banning cars because there are drunk drivers on the roads.

"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

53 posted on 07/28/2007 8:43:46 AM PDT by goldstategop (In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever)
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Comment #54 Removed by Moderator

To: Jim Noble

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.


55 posted on 07/28/2007 9:38:38 AM PDT by RockinRight (Fred Thompson once set fire to a crowd of liberals simply by smoking a cigar and looking upon them)
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To: RockinRight
providing a real estate mortgage, at a decent interest rate, to someone creditworthy, but who can’t prove income

If that was all there was to the mortgage mess, it wouldn't be a mess.

56 posted on 07/28/2007 9:42:11 AM PDT by Jim Noble (Trails of troubles, roads of battle, paths of victory we shall walk.)
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To: Jim Noble

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.


57 posted on 07/28/2007 9:46:32 AM PDT by RockinRight (Fred Thompson once set fire to a crowd of liberals simply by smoking a cigar and looking upon them)
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To: RockinRight

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.


58 posted on 07/28/2007 9:46:48 AM PDT by spunkets ("Freedom is about authority", Rudy Giuliani, gun grabber)
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To: RockinRight
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.

Thanks. I hadn't heard that term before.

59 posted on 07/28/2007 11:03:00 AM PDT by weaponeer
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To: RockinRight

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.


60 posted on 07/28/2007 11:13:03 AM PDT by Hydroshock (Duncan Hunter For President, checkout gohunter08.com.)
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To: Hydroshock

Not if you write off a lot and have an AGI that is very low. Look at post 27 for an example.


61 posted on 07/28/2007 11:43:59 AM PDT by RockinRight (Fred Thompson once set fire to a crowd of liberals simply by smoking a cigar and looking upon them)
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When a Lender is underwriting a real estate secured loan, all they are doing is “risk assessment”. If according to the credit report analysis, the Borrower has the necessary credit depth and the underwriter can clearly see the guy paid his bills since college on time every time, then the chance of him/her defaulting on the loan is low...therefore they can state their income. (we don’t and shouldn't’t care if the guy works as a male escort and cheats on his taxes...not our job} Why would a Mortgage Broker be in the business of enforcing tax laws by asking for income documentation unless it is nesseciated by Borrower’s weak credit standing. All we care about is Borrower’s ability to pay back the loan, and this can easy be established through the underwriting process and credit analysis. Whatever the case, nothing ever gets solved by more knee jerk regulations and bureaucracy.
62 posted on 08/01/2007 12:45:07 PM PDT by Jaalle (In every Republican there is a Libertarian waiting to bust out!)
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