“The Wall Street reform bill in Congress represents the strongest consumer financial protections in history,” says President Obama. “You’ll be empowered with the clear and concise information you need to make the choices that are best for you. We’ll help stop predatory practices, and curb unscrupulous lenders, helping secure your family’s financial future.”

Well, yes and no.

There’s no doubt that many of the provisions outlined in the proposed legislation, S.3217 — the Restoring American Financial Stability Act of 2010 — will do much to end abuse in the mortgage lending field. And while it’s true that the version of the bill online today uses the term “mortgage” 109 times, it’s also true that it contains no federal requirement that would make predatory lending illegal. In fact, the term “predatory” does not appear once in the 1,421 pages of the proposed legislation.

What’s A Predatory Loan?

In basic terms “mortgage fraud” can be seen as some sort of abuse where a lender or mortgage investor is hurt. If you want examples of mortgage fraud just look at the annual statistics produced by the FBI. The latest edition, the 2008 Mortgage Fraud Report “Year in Review,” tells us that “fraud filings from financial institutions increased 36 percent to 63,713 during Fiscal Year (FY) 2008 compared to 46,717 filings in FY2007. The total dollar loss attributed to mortgage fraud is unknown; however, at least 63 percent (1,035) of all pending FBI mortgage fraud investigations during FY2008 involved dollar losses totaling more than $1 million.”

And what about predatory lending, instances where borrowers are screwed by lenders? Nope, not one reported case of lender abuse.

The FBI report is entirely right. Why? Because predatory lending is not a federal crime.

Attorney Benny Kass, a long-time real estate columnist for The Washington Post and an authority in his field, says “there are no federal laws making predatory lending illegal.”

The reason predatory lending is not a federal crime is allegedly that no one can define “predatory” lending. In fact, lenders and loan officers under federal rules have no duty to get the best possible rates and terms for borrowers. Instead, their obligation is elsewhere. As the Mortgage Bankers Association explains “mortgage originators already have significant ‘skin in the game’ in the form of representations and warranties that they make to their investors.”

It doesn’t have to be this way. For instance, S. 3417 talks about “rules with respect to fiduciary or suitability requirements in the sale of annuities that meet or exceed the minimum requirements established by the Suitability in Annuity Transactions Model Regulation of the National Association of Insurance Commissioners.”

Okay, so why can’t there be rules establishing “fiduciary or suitability requirements in the sale of mortgage liens?” After all, the legislation says that it’s intended to “to protect consumers from abusive financial services practices.”

Had such rules been in place five years ago there would have been no financial meltdown and no federal bailout. Mortgage-backed securities would be backed by quality paper. Insurance used to compensate investors for bad mortgage-backed securities would have had far fewer claims. Ratings agencies could correctly rate mortgage-backed securities as safe and secure. Millions of foreclosure notices would have been avoided. While home values may not of soared to the heights seen in 2007 they also would not have collapsed to the levels seen in 2010. The value of your home would be worth more today and there would be a ready market if you wanted to sell.

Predatory lending will always be legal and lawful as long as big lenders have a strangle-hold on Washington. While the new legislation potentially holds many benefits for consumers, the most important benefit of all — the right to a fair deal in the mortgage marketplace — remains missing.

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Published originally by the author on the Huffington Post.

Federal Rules Make Predatory Loans Legal & Lawful is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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This is an unhappy statistic, but it does not tell the whole story. First, as the FBI explains, “the total dollar loss attributed to mortgage fraud is unknown.” This makes much sense given that fraud cannot be known until it’s uncovered — think of Bernie Madoff, Enron and Worldcom.

Second, there’s no central repository to collect mortgage fraud complaints thus the counting and definitions of one source may be different than another.

Third, and most importantly, the FBI report does not cite ONE instance of predatory lending.

Could it possibly be that in a one-year period there was not a single predatory loan issued anywhere in the US?

You’re kidding, right?

Predatory Lending Is Not A Federal Crime

The reason there are no predatory loan statistics in the FBI report is very simple: Although most mortgages originate from nationally-regulated lenders, predatory lending in not a federal crime so there are no statistics to report.

As Benny Kass explains, “there are no federal laws making predatory lending illegal.– Kass is a long-time real estate columnist with The Washington Post and a well-regarded real estate attorney.

In other words, if you make a material misstatement, misrepresentation, or omission on a loan application that can be regarded as mortgage fraud. However, if a lender sells a subprime loan to a family that qualifies for a prime mortgage and increases their housing costs by thousands of dollars per year, that’s just dandy — even if it drives them into foreclosure and bankruptcy. No crime there, no obligation to do what is best for the borrower.

Suspicious Activity Reports (SARs)

The FBI report reflects Suspicious Activity Reports (SARs) rather than actual fraud cases. Given that millions of loans are originated each year the number of fraud prosecutions is tiny. As the FBI reports, last year — in fiscal 2007 — there were 1,204 mortgage fraud cases. They produced 321 indictments and 260 mortgage fraud convictions.

The point, of course, is that the FBI cannot go after predatory lenders if predatory lending is not a crime. Can you guess which industry has worked zealously to assure that mortgage fraud is an issue — but predatory lending is not?

No Predatory Lending In 2008? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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