Mortgages & Foreclosures: Let’s Pick On Real Estate Investors
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The way things are going Arizona is scheduled to have a new foreclosure law in place by the end of September. In basic terms, SB 1271 says lenders can seek a deficiency judgment if you did not live in a property for six months in a row before foreclosure. Translation: The legislation is aimed at those who own second homes and investment real estate. If they’re foreclosed lenders can chase down other assets including houses, bank accounts and retirement savings.
Lenders have already corrupted the bankruptcy process with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a bill which requires borrowers to get six months of counseling before they can even file for bankruptcy — by which time, of course, the house is likely to already be foreclosed. This particular piece of handiwork says judges can modify loans on second homes, yachts and planes but not on prime residences.
In other words, if you lose your job, get sick, have a spouse who dies, are in an accident, or can’t get tenants you should automatically be driven into poverty. Boy, that will sure encourage real estate investment at a time when we have a gross surplus of of unsold and foreclosed homes and need every buyer we can find.
#2 In Foreclosures
Arizona, says the foreclosure listing and data site, RealtyTrac.com, “registered the nation’s second highest state foreclosure rate in the first half of 2009, with 3.37 percent of its housing units (one in 30) receiving at least one foreclosure filing.”
No Obligation To Borrowers
Lenders have corrupted the lending process by refusing to have any obligation to borrowers.
“Some have proposed,” says Harry Dinham, a past president of the National Association of Mortgage Brokers, “that a fiduciary duty standard should be implemented and mortgage originators and their loan officers should act in the ‘best interests’ of the consumer. NAMB remains opposed to any proposed law, regulation or other measure that attempts to impose a fiduciary duty, in any fashion, upon a mortgage broker or any other originator.
“Simply put, a mortgage broker should not, and cannot, owe a fiduciary duty to a borrower. The consumer is the decision maker, not the mortgage broker,” according to Dinham.
John Robbins, chairman of the Mortgage Bankers Association said during June 2007 congressional testimony that “notably, MBA does not believe that a disclosure of function and fees is warranted for mortgage lenders. Unlike a broker whose role may be uncertain – agent or loan provider – a lender’s role is clear. A lender underwrites, approves and funds the loan. The lender does not hold himself out as an agent of the borrower. While a lender must serve its customers fairly, and the industry has done much to assure high professional standards, a lender owes a duty to its shareholders and investors. A borrower knows a lender offers its own products and does not offer to shop for borrowers.”
How about legislation which says that loan officers have a fiduciary obligation to borrowers? How about regulations which are actually enforced? How about allow state regulators to fully oversee the actions of lenders in their jurisdictions. How about laws that require underwriters to assure compliance with lender standards.
No Enforcement
As an example, under the Home Ownership and Equity Protection Act (HOEPA), the Federal Reserve has the power to fight “unfair and deceptive acts or practices” or, as they’re called, UDAP. The legislation was passed in 1994. The Fed never bothered to invoke this law to stop option ARMs, interest-only financing or stated-income loan applications.
Imagine if the Fed had acted. Do you really think there would have been a mortgage meltdown?
The Arizona law needs to be repealed. Real laws need to be written — and enforced.
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