Mortgage Bankers Association Goes After Lender Fraud by Lew Sichelman
Intent on jump starting the long-stalled debate on reforming the mortgage lending process, the Mortgage Bankers Association has set forth a seven-part platform the 3,100-member group says is the only effective way to curb predatory practices and other lending abuses. The plan requires lenders to guarantee their charges prior to taking a loan application, and features a system of remedies if a lender fails to honor its promise. It also calls for federal prohibition of a dozen practices typical of unscrupulous lenders. And though it does not suggest what penalties might be appropriate for violators, MBA Vice President-elect Johon Courson said punishment "has to be more than a slap on the wrist. It has to have teeth." Another consumer protection in the package would prevent foreclosures without first giving borrowers the chance to sell their properties. The MBA does not yet have a congressional sponsor for its package. Rather, it is "setting the stage for next year," said general counsel Howard Glaser, adding it is the group's hope the "GOP will jump on it." Cousron, who runs Central Pacific Mortgage, said the MBA's proposals represents "something tangible" in a debate over mortgage reform that has lasted well over three years. "Finally somebody is stepping up with a full legislative package," he said. MBA President-elect Andrew Woodward, who heads Bank of America Mortgage in Charlotte, admitted many of the package's elements "have been on the table for a long time." But, he added, it's time to take the debate to "a new level." The time for discussion is over, he added. "Now we've got to act. And we're going aggressively forward. It's time to move the ball forward." Under the closing costs guarantee, items such as taxes, insurance, and daily interest that are unique to each transaction would not be included. But all fees charged by lenders, including the rate, points and cash to close, would be set in stone prior to taking an application from a potential borrower. Some costs "would have to be estimated," Courson said. "But otherwise, it's very simplistic in that it gives consumers what they really want, a number they can use to shop." The guarantee also features a system of remedies if a lender fails to honor the closing-cost pledge: If the lender finds the mistake, it can cure it without penalty. If the consumer discovers it, the lender would have to correct it and pay a "minor penalty." And if the lender refuses to act or if the borrower finds the lender's attempt unsatisfactory, the borrower can sue. Another protection that would be made available to consumers under the MBA plan would save their equity in case of foreclosure. Lenders would not be allowed to hold a final foreclosure sale without first ensuring the right of the borrower to list the property for sale. "There should be a process that gives the owner the chance to save whatever equity they have before than the lender takes what's left," said Courson. The improper practices the MBA wants outlawed include the following: steering borrowers to high rate/high fee lenders, intentionally signing borrowers to loans they can't afford, falsifying documents, making loans to the mentally handicapped, forging signatures, and changing loan terms at closing. Also banned would be falsely identifying loans as lines of credit or open-end mortgages, increasing the interest rate when payments are late, charging excessive prepayment penalties, failing to report good payment histories to credit bureaus and failing to provide accurate loan balance and payoff information. Noting that most of these abuses are already illegal under various federal and state statutes, the MBA says regulators should be fully funded and given the resources the need to more effectively enforce the laws. But a federal prohibition also is necessary, said Henry Cunningham, president of Cunningham & Co. in Winston-Salem, N.C., and chair of MBA's state and local council, to "serve as a template for national standards." The goal, Cunningham explained, is to "eliminate that patchwork of state regulations" that lenders operating in more than one state are required to follow. The other portions of the MBA proposal deal with consumer education and counseling for prospective buyers. "This is an intelligent, comprehensive approach that covers all the bases," Woodward told reports. "We've got to enforce, simplify and educate. These are the key cornerstones of what we're trying to accomplish." | 
