TheREALTYgram Blogger

Are NAR Policy Wonks Having Second ThoughtsAbout Supporting Predatory Lending Legislation That Works?

The following article from today's edition of The Washington Post appeared in REALTORS®' inboxes today as part of the National Assn. of REALTORS® Online Daily News program for members:

Standards for Mortgage Lending Debated

(May 25, 2005) --   Consumer advocates and representatives of the mortgage industry butted heads at a recent congressional hearing on predatory lending practices, which saddle homeowners with exorbitant payments and fees that ultimately push them into foreclosure.

While the lending community supports national legislation that would preempt state laws and provide home-finance education to prospective buyers, consumer groups want to preserve the stringent consumer protections imposed at the state level.

North Carolina's six-year-old predatory-lending law, which has become a model used by other states, restricts fees, prepayment penalties, and flipping to protect the equity of borrowers with high-cost mortgages.

Incoming Mortgage Bankers Association President Regina Lowrie expressed concern that a patchwork of state laws will lead to a drop in subprime lending or higher interest rates on conventional loans, but North Carolina banking official Joseph Smith Jr. said his state's legislation has not dried up financing for subprime borrowers.

Earlier this month we were told that NAR was leaning toward a very consumer-unfriendly bill. While NAR has not explicitly stated today that it will throw its weighty support to consumer-friendly legislation,  we still hope that the group will support a bill that will help consumers.

Attorney/Investor Thumbs NoseAt Pennsylvania Seller Disclosure Law

Buyers are advised to seek legal counsel when there are legal issues involving a settlement. They are doubly urged to seek legal counsel when the seller of real estate is an attorney.

The following caveat appears in a listing for an Easton (PA) property: "Sellers Disclosure will be disclosed when offers are presented. None online. Investor has not lived in property."

The Pennsylvania Seller Disclosure Act requires that sellers of residential dwellings of four units or less complete a statement that discloses material defects in the property. This statement is generally available online to real estate agents through the multiple listing service and shared with buyers PRIOR to signing an agreement of sale.

I had an appointment to show this property on Saturday and requested the disclosure. I was told that the seller would not release the disclosure until he had an offer in hand: "He is an attorney and he knows the law."

Here's what the law actually says:

7303. Disclosure of material defects

Any seller who intends to transfer any interest in real property shall disclose to the buyer any material defects with the property known to the seller by completing all applicable items in a property disclosure statement which satisfies the requirements of section 7304 (relating to disclosure form). A signed and dated copy of the property disclosure statement shall be delivered to the buyer in accordance with section 7305 (relating to delivery of disclosure form) prior to the signing of an agreement of transfer by the seller and buyer with respect to the property.

We passed on that showing.

'The Mortgage Professor' Is A Treasure ChestOf Counsel For Home Buyers And Loan Shoppers

Oweboat published a blurb last week about a web site that is an absolute MUST for anyone shopping mortgage financing. The Mortgage Professor's Web Site went to my personal Favorites list when I read the section titled Tricks by Loan Providers. The site is published by Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania, and chairman of GHR Systems, Inc., a mortgage technology company. Remember that the best way to beat predatory lenders is by educating oneself about the process and proceeding accordingly.

Here is a small sample of a long list of Mistakes to Avoid in the home buying/loan shopping process.

BUYING A HOUSE

Look for a house without knowing how much you can afford to pay.

Assume that stretching your house-purchasing ability to the limit will maximize your wealth over the long term.

Buy a manufactured house through a dealer with a package that includes house, installation, site and financing.

SHOPPING FOR A MORTGAGE

Assume that rate quotes from loan providers are always given in good faith.

Assume that a "discount mortgage broker" will cost you less.

Assume that the Government requires lenders to disclose everything that is really important to borrowers.

QUALIFYING FOR A MORTGAGE

Assume that shopping multiple loan sources will adversely affect your credit rating.

Confuse "qualification" with "approval".

Accepting that you need an adjustable rate mortgage to qualify because the loan officer said so.

SELECTING THE MORTGAGE

Assume that a "no-closing cost loan" is a good deal.

Neglect to ask whether your loan has a prepayment penalty, and verify the answer on the Truth in Lending (TIL) disclosure statement.

Assume that because you are a veteran, your VA loan will be fairly priced.

LOCKING THE PRICE

Allow the price to float on a home purchase transaction.

Accept a mortgage broker’s verbal assurance that the loan has been locked with the lender.

Believe that fixed-dollar lender fees, and rate adjustment caps on ARMs, are covered by locks.

Watch Out For Predatory Lenders;They Are Running Rampant Among Us

The U.S. Dept. of Housing and Urban Development has an excellent web site that covers all aspects of  Real Estate Settlement Procedures Act. RESPA is a consumer disclosure and anti-kickback statute designed to inform consumers of their settlement costs and to prohibit kickbacks that can increase the cost of obtaining a mortgage.

Different players in the lending game operate under different rules.  For example: mortgage lenders and bankers are NOT required to disclose yield spread premiums; mortgage brokers ARE required to offer those disclosures. The yield spread premium is the  "refund" or "commission" given to the loan officer/mortgage company for selling the loan above the going interest rate. Most loan officers conveniently "forget" to tell consumers about  this charm. Ask the loan officer for copy of the "lock sheet" . If the loan offer declines, DEMAND a copy of the lock sheet!

A consumer with a complaint can use the following format for a letter (taken from HUD web site). (I would highly recommend that the consumer speak with an attorney who is familiar with RESPA and the intricacies of the Act.)

Attention Customer Service:

Subject: [Your loan number]
[Names on loan documents]
[Property and/or mailing address]

This is a "qualified written request" under Section 6 of the Real Estate Settlement Procedures Act (RESPA).

I am writing because:

• Describe the issue or the question you have and/or what action you believe the lender should take.
• Attach copies of any related written materials.
• Describe any conversations with customer service regarding the issue and to whom you spoke.
• Describe any previous steps you have taken or attempts to resolve the issue.
• List a day time telephone number in case a customer service representative wishes to contact you.

I understand that under Section 6 of RESPA you are required to acknowledge my request within 20 business days and must try to resolve the issue within 60 business days.

Sincerely,

[Your name]

REMEMBER: This letter SHOULD NOT be included with your mortgage payment, but should be sent separately to the customer service address.

You SHOULD continue to make the required mortgage and escrow payment until the request is resolved.

You may bring a private right of action under Section 6, if you suffer damages due to the lender's servicing of the loan. See the RESPA statute and regulations.

More links:
BEWARE of the BAD "Good Faith Estimate"
Questions to ask your mortgage broker
Junk Fees
"Mean" questions to ask your loan officer
Predatory lending legal specialists (excellent attorneys)

NAR Backpedals On Predatory Lending Stance;Will Support Bill That Lets Predators Off The Hook

WHOREMASTER 103 Lesson Plan: It's all in the name of the bill, stupid! Inside sources tell us that the National Assn. of REALTORS® will announce support for a bill that is fiercely opposed by civil rights leaders and consumer activists. The announcement will be made at the group's mid-year meetings this week in Washington, D.C. The "Responsible Lending Act" co-sponsored by Reps. Robert W. Ney (R-Ohio) and Paul E. Kanjorski (D-Pa.) will curb some abusive lending practices but it will also preempt state and local laws that afford additional substantive protections, and wipe out a recent regulatory ruling mandating that state-chartered thrifts and independent mortgage companies cannot evade state limits on late fees and prepayment penalties on adjustable-rate mortgages and other alternative loans.

There is another bill before legislators that champions consumer and civil rights concerns, cuts predatory loans and makes it easier to obtain a home loan. This bill is co-sponsored by Democratic Reps. Brad Miller and Melvin Watt, both of North Carolina, and Barney Frank (Mass.), that sets more stringent rules. It is modeled on North Carolina's state law, which has been copied by New York, New Mexico, Illinois and New Jersey.

Let's hope our inside sources are wrong on this one.

Tenant's Rights To Property UpheldIn Massachusetts Bankruptcy Court

A federal bankruptcy court in Massachusetts has derailed a debtor's attempt to extinguish a tenant's lease. In 2000, the Debtor obtained mortgage financing on the property in order to make certain improvements. As part of the loan process, the lenders entered into a nondisturbance agreement with the Tenant. The agreement stated that while the mortgage would take precedence over the lease and the other options held by the Tenant, the lenders agreed that the Tenant’s rights would not be affected by a foreclosure or other sale of the property.

In 2004, the Debtor filed a Chapter 11 bankruptcy petition and  filed a motion seeking approval of the bankruptcy court to auction the property on which the Tenant was located free and clear of all interests. The Tenant opposed this motion. The court ruled in favor of the tenant.

PA Landlord Sentenced For ForgingTenant Sigs On Lead Paint Disclosure Forms

A York (PA) landlord was sentenced to probation and home confinement on Friday for forging signatures on Environmental Protection Agency lead-notification forms, according to legal attorney/blogger Joseph Gothie in his Gothie Law Firm LLC blog. Says Gothie:

"I have repeatedly warned landlords about their obligations to comply with lead-based paint disclosures. One of the services that I provide to landlords is a review of their lead paint exposure as well as sharing ways to comply with the law and to ensure that their records reflect that they complied with the law." (Gothie offers these links for landlord study.)

Under a 1992 law, sellers and landlords of residential housing built before 1978 must disclose to purchasers and tenants the presence of known lead-based paint hazards or the lack of knowledge of such hazards. They also must provide a lead hazard information pamphlet and a standard warning statement in the lease on the dangers of lead-based paint.

Indianapolis Plans Vote To Protect Gay Rights

A vote is planned on a civil-rights proposal that would protect homosexuals in Indianapolis from work and housing discrimination.

If approved by the City-County Council, the measure would make it illegal to block gay or transgender applicants from purchasing or renting residential property. Additionally, businesses with at least six employees would be prohibited from firing, refusing to hire, or mistreating workers based on sexual orientation.

Similar measures already have been passed in other Indiana communities, including Bloomington and Lafayette. (United Press International)

TheREALTYgram Blogger Makes National HeadlinesAs HUD Home Sales Scandal Continues To Unfold

EDITORIAL -- Officials in the Office of Asset Management of the U.S. Department and Housing and Urban Development appear to be asleep at the wheel. Inman News published a shocking article yesterday titled "Investor fraud grows in HUD real estate sales...More investor buyers pose as non-investors" by Glenn Roberts.   The information was based primarily upon a series of articles published in TheREALTYgram Blogger. 

Here is the most shocking quote gleaned from Roberts' piece:

"According to HUD statistics, there were 14 cases last year that were investigated as possible HUD Homes eligibility violations, and four sanctions issued. In 2003, there were 20 cases investigated and 13 sanctions issued, in 2002 there were 14 cases investigated and five sanctions issued, and in 2001 there were 12 cases investigated and five sanctions issued...While owner-occupant buyers are supposed to live in a property for a year after purchase, Laurie Maggiano, deputy director of the Office of Asset Management for HUD said it is a difficult rule to enforce. "We probably wouldn't even know about it," she said, if the owners resell the house within a year."

By its own admission, HUD cites a mere 27 sanctions for fraud nationally in four years! In the Lehigh Valley (PA) alone, there were more than 30 cases of investor fraud in the last year alone, according to investigative experts who have been in contact with us since TheREALTYgram Blogger broke the story in February, 2005. Those cases involve buyers of "multiple" HUD homes as well as real estate licensees. Sources close to the Lehigh Valley investigations report that complaints have been filed with HUD's asset managers for the region as well as with HUD.

None of the sanctions Maggiano references can be found in HUD's audit reports, which include disciplinary reports for all other types of HUD fraud. What are the nature of these "sanctions"? Language on the HUD Agreement of Sale warns of $250,000 fine and imprisonment for offenders. Did these sanctions include fines and/or imprisonment?

Maggiano's comments demonstrate an attitude at HUD that fosters, aids, and abets the continuing practice of fraud in the HUD Homes For Sale program. It's time to get the HUD Homes For Sale program back on track.

Nationwide Sex Offender Registry

There is a new database that offers a sex offender search of numerous states by offender name or by zip code.