Real Estate Investing

For what seems like forever now, I’ve questioned why Realtors are so heavily monitored by our brokers, by local, state and national associations, and by the state while the oversight of mortgage lenders is so light nonexistent.

Realtors undergo massive training.  While we don’t study for years and years like a medical doctor, we must take ethics classes and it is drilled into our heads about the laws we must obey that protect customers and clients - all consumers.  I get a little bulletin from the state of Tennessee every three months that contains a long list of the brokers and affiliate brokers who’ve done wrong, what law they broke (it could be as simple as not providing a new address within a certain timeframe to not depositing escrow money within two or three days), and how they are being punished.  Punishments range from fines of $250 to $10,000 to loss of license.

And you know what?  I’ve never seen this happen to the lenders.  Matt Padilla, a reporter with the Orange County Register, put on his newspaper blog how his expose’ on the lack of lending oversight is resulting in more investigative articles.  One of his commenters wrote,

“I am an account executive and have seen numerous broker shops using only the brokers name on the application. In some cases the entire shop was not licensed but doing business under the brokers name…”

I think it’s about time the Feds are stepping it up a notch.  It appears they are now ready for new rules that should slow mortgage fraud.  According to CNN Money, the new rules governing “higher-priced,” or subprime, loans will:

• Prohibit creditors from extending credit without regard to a consumer’s ability to repay the loan from income and assets other than the home’s value. The lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan.
• Require creditors to verify income and assets they rely upon to determine repayment ability
• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years.
• Require creditors to establish escrow account for property taxes and homeowner’s insurance. This rule will be phased in during 2010.

Clap! Clap! Clap!   What took so long?!  PLEASE read the entire article by CNN Money because there are many more rules that apply to all loans (for example, the rule also bans seven deceptive practices, such as saying a rate is fixed when it can change - remember my friend Mary?  That happened to her.).

Sadly, the new rules won’t help home owners who are already behind on their mortgages, a kiss away from foreclosure.

Cartoon from here.