Speaking before the Senate Judiciary Committee last year, FBI Assistant Director Kevin L. Perkins noted that the FBI now has new funding to chase mortgage fraudsters under the Financial Intelligence Center (FIC).

The FIC, says Perkins, allows the FBI “to investigate mortgage fraud, predatory lending, market manipulation, and other financial frauds. The FIC is currently staffed with one supervisory intelligence analyst, eight staff operations specialists, and six intelligence analysts. In FY 2010, the FIC should be fully operational with a total staffing level of 58.”

This is a big jump in personnel and the effort should be welcomed but the problem concerns predatory lending.

What, exactly, is the FBI supposed to investigate? Predatory lending where a borrower is hurt by the actions of a lender is not a federal crime while mortgage fraud — where a lender is hurt — is entirely unlawful.

As an example, Smith qualifies for an FHA loan but is sold a subprime mortgage by his nearby, friendly mortgage lender. The result is that Smith pays, say, 7 percent rather than 5 percent interest and his monthly cost for a $200,000 loan goes from $1,073 for principal and interest to $1,331. That’s an additional $258 a month or $3,096 a year, a loan which is less affordable and far more likely to result in foreclosure. It’s also a loan which is fundamentally unfair given Smith’s credit and financial standing.

Why is it that unfairly taking an additional $3,100 a year from borrower Smith is lawful but robbing $20 from a convenience store is a crime? As Woody Guthrie explained, some people will rob you with a gun and some with a pen. In either case, it’s still robbery.

Under federal rules, mortgage lenders have no obligation to get the best rates and terms for borrower Smith. There is no fiduciary obligation to a borrower, no agency requirement. Unfortunately, Smith has no place to get mortgage information other than, well, mortgage lenders. Smith relies on lenders for information, advice, product options and rates.

It’s great that the FBI has more funding and will be able to field more people in the fight against financial fraud. That’s right and proper. But it’s not fair to the FBI to ask for their help in the fight against predatory lending when predatory lending is perfectly lawful under federal rules.

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Written by Clifford V. Rossi, a business professor at the University of Maryland, Anatomy of Risk Management Practices in the Mortgage Industry: Lessons for the Future “contends that expansion into riskier products by mortgage firms that subsequently suffered large credit losses was a strategy intended to grow the franchise and along with it the attractiveness of the firm to investors.”

The goal was to increase the “attractiveness of the firm to investors.” In other words, company stock. “If executives could not earn a higher return on invested capital,” explains Rossi, “they would be replaced through a takeover by executives who could. This message was consistently and convincingly hammered home by Wall Street analysts to every increasingly anxious CEO and CFO.”

The report says that new loan formats were developed in an environment where the true extent of lender risk was not understood.

Multiple Causes

Rossi says “no single factor was responsible for the significant expansion of credit and mortgage products during the period leading up to the mortgage crisis. However, there are indications that greater risk-taking could be attributed to the following factors:

• “An over-reliance on performance metrics not adjusted for risk which would lead management toward riskier products
• “Data and analytical limitations and blind spots that led risk managers to grossly underestimate credit losses
• “Cognitive biases among senior business managers that over time led them to take greater risks, and in the process reduced the effectiveness of risk management practices
• “Incentive problems leading to regulatory actions that wound up not being in the best interest of the taxpayer.”

Bad Timing

Rossi says non-traditional mortgage products were introduced during a period when home appreciation was strong and interest rates were near historic lows.

“This favorable economic environment,” says Rossi, “contributed to a period in which mortgage default rates were very low by historical standards. As a result, the economic environment tended to bias loss estimates downward in a real
sense. This contributed to further mortgage expansion and vast understatement of potential losses due to risk layering and the expansion of nontraditional mortgage products such as option ARMs and piggyback HELOCs. The development of new products and the expansion of risk parameters on existing products came at perhaps the worst time. With virtually no historical experience with these new risk combinations and that which existed largely coming from a benign economic environment, risk models would have little hope to accurately reflect expected loss, let alone loss levels during an extreme event such as the financial crisis.”

Translation: Industry leaders should have listened to stock brokers who always remind us that past performance does not guarantee future results.

No Doc Loans

Another interesting point made by Rossi concerns the increased use of no-doc and low-doc mortgage applications.

“As underwriting standards on income documentation and LTV loosened, allowing for both limited or no income verification and low equity stakes in the property, traditional borrower sentiment toward home ownership changed. Renters were increasingly able to become homeowners with little downpayment and with creative cash flow structures that provided short-term payment capacity. As long as home prices continued to rise, a borrower in such a situation could refinance out of one loan and into another, or sell the property without loss. But once home prices peaked, particularly for those purchasing their home at or near the top of the cycle and possessing limited equity in the property, borrowers became stranded in the home with few alternatives. In such cases, borrowers ruthlessly exercised their default option as historically important ties to the home were outweighed by excessive payment burdens coupled with negative equity in the home. At the same time, widespread lapses in controls of counterparties as evidenced by a spike in mortgage fraud aggravated a growing credit problem.”

This is an area where I disagree with Rossi. While there was surely a lot of mortgage fraud, there was also a lot of predatory lending where — for example — borrowers who qualified for better financing were sold high-cost subprime mortgages. Unfortunately, the term “predatory” does not appear in the report. Also among the missing is the word “fiduciary,” as in the lack of an obligation under federal rules by lenders to get the best possible rates and terms for borrowers.

That said, the Rossi report is unusually well-done and should be read by anyone who wants a better understanding of the motivations which led to the mortgage meltdown. It’s a step forward, helpful and insightful.

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“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.

_______________________

Published originally by the author on the Huffington Post.

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However, there are situations where owners run into tough times because of the loss of a job, divorce, an accident or medical costs. In such cases there are always nearby friendly hard-money lenders to provide the financing you need — at a cost.

Hard Money Loans

To understand how hard money financing works lets take an example where owner Wilson needs to refinance.

The Wilson property is worth $300,000 and Wilson has $160,000 in equity and $140,000 remaining on the mortgage. With a job and good credit Wilson can refinance the property with a new $210,000 loan at 5 percent plus 1 point in today’s market.

A point is worth 1 percent of the loan balance and is paid or credited at closing. In this case Wilson deducts the point (1 percent of the amount borrowed or $2,100 in this case) from the loan amount leaving $207,900 before closing costs and the repayment of the current loan. After paying off the existing loan of $140,000, Wilson has $67,900 before closing expenses.

Wilson now has a $210,000 mortgage at 5 percent interest. Paid with a 30-year schedule, the monthly cost for principal and interest is $1,127.33

But let’s say times have gotten tough for Wilson. His employer of 20 years has gone bankrupt and his medical insurance lapsed just before he was diagnosed with a disease that will cost $40,000 to treat. His credit is shot and his savings are gone.

Tough Terms

Filling this void are hard money (HM) lenders, sometimes described as lenders, individuals or investment groups. They will loan money but under different and, er, unique terms. In this case they might make a loan equal to 60 percent of the property or $180,000. Seen the other way, they want Wilson to have 40 percent equity. In a strong market HM lenders might accept 25 percent equity, while in slow markets they might only finance properties with 50 percent equity.

In addition, the interest rate will be 15 percent. There will be 5 points at closing.

HM lenders don’t care about income, they care about equity and the value of the property. In this example it’s the 40 percent equity that’s central to the transaction. If Wilson does not make his payments, the HM lender will swoop in and take the property through foreclosure.

At closing Wilson is set to receive $180,000 less 5 points. That means Wilson is actually getting $171,000 — the points are equal to $9,000 up front. Wilson uses his loan to pay off his existing $140,000 mortgage and then has $31,000 remaining before closing costs.

Wilson also has a $180,000 mortgage at 15 percent interest. The monthly cost for principal and interest with a 30-year schedule is $2,276.00 — TWICE the cost of the conventional payments for a bigger loan.

Why would anyone deal with a hard money lender? Is it a foreclosure scam, the step just before losing a home? Because of poor credit the regular lending system has been cut off to Wilson — and remember that the regular mortgage system has not always been so great, think of toxic loans. In difficult circumstances desperate borrowers turn to lenders with tough terms, terms HM lenders can only get because the borrower is so needy.

Is a hard-money loan a predatory mortgage? Assuming that all terms and conditions are plainly known and understood by the borrower, and provided there are no clauses which instantly raise interest rates if a payment is missed, call the loan when a payment is late or have hidden fees and charges, then no. Rather than being predatory, a hard-money loan in the best circumstances is simply a form of financing with hard terms reflecting the borrower’s poor credit.

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Fixing the mortgage system is crucial if we’re to prevent another financial meltdown. If the mortgages are done right than mortgage-backed securities will also be right — and that means there won’t be worries regarding securities ratings or insurance. Lenders will not be stuck with overvalued properties and undervalued paper.

No less important, if we fix the mortgage origination system we will also protect borrowers. No more toxic mortgages which are at the heart of our financial problems.

Here are six steps the borrowers, lenders and government officials can take now, this week, to revamp the mortgage system.

First, in the past year a Nationwide Mortgage Licensing System supported by state regulators and the federal government has begun operations. In essence loan officers now have unique registration numbers even if they move from state to state. This means the name and registration number for a loan officer can be included in mortgage documents — and loan officer performance can then be graded in the same way that we have credit scores. It may well be that prudent investors will not want mortgages included in a mortgage-backed security from loan officers with a score below a certain level — and it may also be that lenders will not want to hire such poor performers. Of course, the same concept of registration and responsibility should be extended to mortgage underwriters.

Second, lending rules must be changed so that loan officers have a fiduciary obligation to borrowers, in the same way that lawyers have an obligation to clients and doctors have an obligation to patients. The creation of a fiduciary obligation for loan officers would mean that aggrieved borrowers could take loan officers and their lenders to court in the event of abuse, a system which seems to work well for virtually every other type of business. Members of the UpFront Mortgage Brokers Association already have adopted this standard and promise that they “will endeavor to act in the best interests of the customer,” disclose their fees up front and credit the borrower for cash they receive from third-parties.

Third, require that all loans be fully documented and that income and employment are verified. This would do away with “stated income” loan applications where lenders do not verify borrower income claims.

Fourth, have HUD set the interest rate and points for FHA loans — and post that information daily online. There’s no reason this can’t be done. In fact, until 1983 HUD actually did set FHA mortgage rates. Borrowers would then have an easy way to follow the market by using FHA rates as a benchmark.

Fifth, predatory lending is NOT a federal crime. Loan fraud — where a lender is abused — is very much a federal crime but predatory lending where a borrower is overcharged by a lender is entirely ignored by federal laws. The next time you hear a politician yammer about “predatory” lending ask if he or she would support a specific federal law against such activities.

Sixth, every mortgage-backed security which has a high level of foreclosures should be audited by the FBI to assure that all loans were properly underwritten. When that’s not the case then appropriate action should be taken against the lender, the loan officer, the underwriter and the Wall Street securities packager who were paid for such work.

Would these ideas work? You bet. Toxic loans would be impossible and there would be real penalties for abusing borrowers and investors.

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But nowhere in the news do we hear of any effort to help the mortgage borrowers whose screwing made the financial meltdown possible. While the SEC is concerned about helping securities investors who lost $1 billion, no one gives a damn about the people who lost their homes.

Let’s look at what really happened:

*We have millions of foreclosed homes, a downsized economy and massive job losses as a result of the financial meltdown.

*The federal government had to bail out Wall Street because big banks and brokerages were stuck with mortgage-backed securities (MBS) they were unable to unload on pension funds and various investors.

*The MBS were insured in case their value eroded, but the insurance was no good because there were few if any reserves set aside for claims.

*To create mortgage-backed securities, Wall Street needed an ongoing supply of mortgages. Since lenders could sell virtually all the loans they originated it made sense to lower application standards and introduce non-traditional mortgage financing and popularize option-ARMs, interest-only loans, financing with little or nothing down, piggy-back financing and “stated income” loan applications which allowed borrowers to essentially guess their income.

Bottom line: There would not have been a financial melt-down if the mortgage origination process was effectively regulated at the point of sale, the moment when loans are sold to borrowers. With good loans the mortgage-backed securities would have been fine, the ratings would have been justified, few insurance claims would have arisen and a Wall Street bailout would have been unnecessary.

Best Rates And Terms

Anyone who has ever looked for a mortgage naturally wants the best possible rate and terms for their financial situation. And lenders are happy to offer such rates and terms, at least that’s what they say. After all, no one would use a mortgage lender who advertised the second best rates in town.

In other words, virtually all borrowers rely on mortgage lenders for product options, rate information and counseling. And lenders, for their part, have no obligation under federal rules except to maximize their profits.

Don’t believe it?

“Some have proposed,– said Harry Dinham in 2007, then 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,– says Dinham.

John Robbins, then chairman of the Mortgage Bankers Association, explained 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.”

No Help For Borrowers

While the SEC is busily doing battle with Goldman Sachs, who is fighting for the borrowers who lost their homes? The SEC claims that 99 percent of the residential mortgage backed-securities (RMBS) in one loan portfolio had be to downgraded. Is there any possibility that loans which fail with such frequency were tainted from the moment of origination? Can lawyers claim an unconscionability defense on behalf of borrowers with such mortgages?

Lenders point out that borrowers signed all the paperwork and were free to decline loan offers. But who was the authority figure in the room? Upon whom did borrowers rely? Has anyone actually read their loan papers?

Mel Martinez, an attorney and former HUD Secretary under George W. Bush told the Washington Post, “you know if I’m a lawyer and the secretary of HUD and I’m not reading this junk, you know there’s work’ to be done fixing the system.” (See: “HUD Chief Seeks Simpler Sale Closings,” June 2, 2001)

Attorney and also a former HUD Secretary under George W. Bush, Alphonso Jackson, told the Washington Times that “I’m an attorney and I’ve had eight houses and I didn’t read all that mess. If I didn’t read it — and I doubt anyone around this table read it — then we can’t hold people responsible for not reading every line when they were closing their loan.’” (See: “Jackson: Mortgage fine print not read,” March 20, 2008)

What lenders won’t point out is this: Every loan, without exception, is underwritten. The lenders create qualifying standards for each mortgage product and have in place an extensive process to assure that the borrowers met all requirements. Lenders can decline questionable loan applications, something that no doubt would have happened were it not so easy to sell such paper on Wall Street.

To their credit, many small lenders did not and do not regard homebuyers as prey. Few community banks or credit unions, as examples, offered toxic loan products.

Think about it the next time you need a mortgage.

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The two men face decades of jail time for defrauding investors by selling securities which were described as being backed by federally-guaranteed student loans when in fact they were actually auction-rate securities, a more risky financial product.

So, let’s review. It’s illegal for stock brokers to engage in bait-and-switch tactics. Why then is such behavior entirely fine for loan officers and mortgage bankers selling loans from national lenders?

It’s a normal and routine thing to sell borrowers mortgages which are not right for them. Don’t believe it? According to the Wall Street Journal, its review of subprime loans showed that 61 percent had been sold to borrowers who qualified for better better financing with lower costs. (See: Subprime Debacle Traps Even Very Credit-Worthy, December 3, 2007)

How is it possible that borrowers consistently opted for loans with worse terms and higher costs during the past few years? Do you think when lenders promised to get those borrowers the best possible terms and instead sold them loans with high costs but higher lender profits that no bait-and-switch was involved?

There’s justice for rich investors, but when was the last time that a mortgage broker or a loan officer went to jail for screwing a borrower? As we have explained, predatory lending is not even a federal crime, it’s perfectly legal under federal rules to ruin mortgage borrowers with higher fees and costs then they should be paying.

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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?

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But will the new collaborative really change marketplace realities? You’d like to hope that the answer is yes but traditions can be hard to overcome.

The group says its members generate mortgages worth $520 million annually and describes itself this way:

“For the first time ever,” says the Collaborative, “American consumers seeking mortgages will now have the option of using lenders that are certified as “safe,– “fair– and free of predatory lending, under a 21-member national network known as the nonprofit “Fair Mortgage Collaborative– (FMC), the members of which are committed to providing homeowners and homebuyers access to mortgages at a fair rate of compensation. The major effort supported by the Ford Foundation is the first national campaign of its kind aiming to restore consumer confidence in mortgage lending in the wake of the ongoing mortgage foreclosure crisis fueled in large part by predatory lending abuses.”

Standards

Okay, so how do we know that a lender is safe, or fair or not predatory? The Coalition has set up five standards:

___ FMC Lender Works for Customer, Not Other Way Around;

___ No Steering;

___ Absolutely No Predatory Loans;

___ Non-Standard Loans Require Clear and Compensating Customer Benefit; and

___ FMC Keeps Rules and Standards Current for New Loan Types.

Missing Lenders

The group is supported by an impressive list of housing foundations and related organizations, but what’s missing are the big banks, S&Ls, mortgage brokers and mortgage bankers who provide the overwhelming majority of the nation’s home loans.

Most lenders have traditionally opposed the concept of working for borrowers. No less important, federal rules are entirely devoid of any requirement to get the best possible deal for the borrower, what’s generally known as a fiduciary obligation.

“Fiduciary” is simply a fancy term that means when you employ someone they will put your interests first and not their own. Doctors, dentists, lawyers, buyer brokers and listing brokers all have an obligation to do what’s best for their patients and clients and if they don’t they can be sued. Lenders and loan officers under federal rules — the rules that count — have no such obligation.

Mortgage Brokers

“Some have proposed,– said Harry Dinham in 2007, then 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,– says Dinham.

And where do consumers get their information? Upon whom do they rely for product options? How can a lender advertise the “best rates” or the “lowest” rates without being obligated to hold down the borrower’s costs? Would any sensible person go to a lender who advertised the highest rates?

Mortgage Bankers

John Robbins, a former 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.–

The problem, of course, that in the everyday world of borrowing consumers have no idea who is or who is not a mortgage broker or a mortgage banker. What consumers do know is that they need assistance with what’s likely to be their largest purchase, a mortgage — and not a house. For example, imagine that you buy a home for $200,000. You get a $190,000 mortgage at 6 percent over 30 years. The total interest cost over the life of the loan will be $220,094.

Changing Industry Standards

Interestingly, I suspect that a number of mortgage brokers, mortgage bankers, community banks, credit unions and thrifts will be willing to be certified under the terms of the Fair Market Collaborative. Why? Because they realize that the best way to build “relationships” with people is not to drive them into bankruptcy. Just look at the lenders who refused to originate option ARMs, interest-only mortgages and have never accepted stated-income loan applications.

But in addition, more is needed. Federal standards must be changed to assure than when you get a mortgage and rely on a loan officer for advice that the individual who provides information is absolutely obligated to get you the best possible rates and terms.

Certified Lenders

Lenders can be certified by the Collaborative and hopefully borrowers will be educated to only deal with lenders who have agreed to the group’s standards. Those who have so far been certified to offer “safe and fair” mortgages include:

__ The Boeing Employees’ Credit Union (BECU)

___ Prime Alliance Solutions

___ The Federation of Appalachian Housing Enterprises & Just Choice Lending

___ The Mortgage Grader

___ The National Council of La Raza Homeownership Network and Direct Lending Family

___ The National Federation of Community Development Credit Unions (The Mortgage Center)

___ Neighborhood Housing Servics of America and Just Price Solutions

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Answer: You need to look at this very carefully. A mortgage is a contract. It has certain terms and conditions. You want to honor all conditions.

In the usual case and with virtually all lenders mortgage payments are due on a certain day each month. Payments made after the due date are, literally, late. The question then becomes: What are the consequences of being late?

Most mortgage agreements today provide a grace period after the due date. There is no late fee for payments received during the grace period — but the payment is, again, literally late.

The reason for grace periods is that payments can be delayed in the mails, due dates fall on holidays, a payment may not be immediately processed, etc. Rather than debate when a payment was mailed or how it was processed, lenders allow a grace period.

The consequences of a payment received during the grace period are, usually, zero. There is no late fee and nothing shows up on your credit record. (Payments less than 30 days late, even if they result in a late fee, typically are not reported to credit bureaus or listed on credit reports, thus they will not impact credit scores.)

Why do I say usually? Because not all loan agreements have grace periods. A mortgage agreement read literally could allow a late payment to result in the loan being called. And not all mortgage contracts are fair — think of predatory loans where interest rates can rise or step fees can be imposed when payments are late. For these and other reasons, borrowers should make a point of always paying mortgages on or before due dates.

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Syndicated originally by Content That Works and posted with permission.

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