Should Criminals Make Mortgages?
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Will you get your next FHA loan from a convicted criminal?
If that sounds like a loopy idea, consider this: There is currently no rule which says a convicted criminal cannot act as an FHA mortgage lender.
Alternatively, consider this: If someone has been in jail, served their time and completed their obligation, how can they earn a living and become productive members of society if we do not allow them to find work — including work in the mortgage field?
This is not an abstract argument. A bill going through the Congress right now, H.R. 1106: The Helping Families Save Their Homes Act of 2009, would ban large numbers of people from originating FHA loans — including some who have never been convicted of anything.
Let’s take a look at Section 203.
It says that “in order to be eligible for approval by the Secretary, an applicant mortgagee shall not be, and shall not have any officer, partner, director, principal, or employee” of an FHA approved lender who has committed certain crimes — or who has not committed certain crimes.
First, it would bar anyone who has been “under indictment for, or has been convicted of, an offense that reflects adversely upon the applicant’s integrity, competence or fitness to meet the responsibilities of an approved mortgagee.”
There’s a huge difference between an indictment — which is nothing more than an accusation — and a conviction, which means a court has found someone guilty. While not all court decisions are correct, that’s why we have an appeals process and why people on death row are released with some frequency, indictments are not evidence of certain guilt. Indictments are, instead, an accusation, a claim — and very often thrown out.
Thus the proposed law would punish people who literally have done nothing wrong.
The legislation would, if passed, also bar those who are “subject to unresolved findings contained in a Department of Housing and Urban Development or other governmental audit, investigation, or review.” If the findings are unresolved, could it be that they are being appealed in the court process? Are audits, investigations or reviews always right? Should we punish people for pursuing their rights in court? If a matter is “unresolved” and we punish people for merely trying to defend their rights, does that not give the government a lot of authority — perhaps too much authority.
The bill would also dump those “engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility.” I wonder about this: Does this mean the idiots who developed such things as option ARMs, the widespread use of interest-only loans or stated-income loan applications would be barred from making mortgages? If so, that would mean huge numbers of lenders in big banks would today be unemployed — and without bonuses.
What about the regulators who did nothing to stop practices that were not prudent — and had the authority to so? Where is the provision which would toss them out of their cushy government jobs?
The bill says that if someone has been “convicted of, or who has pled guilty or nolo contendre to, a felony related to participation in the real estate or mortgage loan industry” they cannot go back to work selling loans. I’m okay with this one because it is relevant, requires an actual conviction and has a time limit. In America we should not punish people forever, unless we want to feed and house them forever.
It’s easy to yell and scream about law and order, but in this country we believe in the central concept of being innocent until proven guilty — and even then there’s a right to appeal. We also believe that government is not always right — that’s why we try to balance the branches of government. This is why Section 203 of the bill, a bill which otherwise largely deals with the right of bankruptcy judges to modify mortgages, needs to be re-thought and revised.
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