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    Mar 2006
    Boston, Mass.

    Default Iowa Attorney General Targets Sub-Prime Lenders

    Fed applies Lender Slime® to a mortgage broker.

    Iowa Attorney General Targets Sub-Prime Lenders
    February 21, 2007 (BrokerWatchdog)

    Attorney General Tom Miller unveiled a package of legislative proposals aimed at predatory mortgage lending. He said the worst abuses tend to occur with "sub-prime" lenders, who provide mortgages to borrowers who have impaired credit, limited income, or other situations that prevent them from obtaining loans in the prime market.

    The Iowa Division of Banking and Superintendent Tom Gronstal joined Miller in backing the proposed legislation.

    "Predatory lending exploits consumers," Miller said. "We are trying to outlaw some questionable practices that cause consumers to pay too much and get trapped in high-cost loans. In the worst cases, consumers can’t make their loan payments, and they lose their homes."

    Miller said he was concerned by increasing foreclosure rates in Iowa and around the nation. (Foreclosures in Iowa were up 64% in 2006 compared to 2005.) "This bill is about conduct - about reining-in bad practices we have seen. It will help root out the ‘bad actors’ who have harmed consumers and have unfairly gained market share at the expense of honest lenders. It will not ban any products, and it will not restrict consumers’ access to credit."

    AntiSpin: Bad conduct in the lending industry? Who could have known? As surely as Sarbanes-Oxley follows stock market bubble, here come the politicians to clean up the real estate mess, after the fact, when regulation is no longer needed.

    Our October 2006 Housing Bubble Update: Price Deflation Risk Due to Overpriced Appraisals reported:

    The petition by appraisers went up and has been collecting signatures for over six years–not coincidentally, since the end of the stock market bubble and the start of the housing bubble.

    Here is a small sample of the hundreds of comments among the nearly 10,000 petition signers to give you a sense of what they have experienced while the politicians were collecting the tax revenue.
    "I see this every day, and abhor the appraisers who support unethical conduct. It's a shame the state boards are so passive."

    "Home listed items it did not have. Appraiser refuses to ammend report" (Apparently ratting on another appraiser.)

    "The politicians do not really care about this issue as it does not help them get re-elected. The ASB is toothless."

    "This practice is going to difficult to stop. You don't hit the number, you do not hear from the lender again."

    "I've been blackballed by an entire branch office at a major bank and I'm the bank's appraiser! It has to stop!"

    "This is a huge problem and someone needs to be held accountable."

    "Appraiser/Broker black listed many times, requested minimum values, violate USPAP, comp checks violate MLS policy. Get it!?"

    "I am the President of two CA appraials associations - The Sonoma County Appraisal Assoc., & Marin County Appraiser's Assoc."

    "I have "lost" a few clients because I will not stretch values. At least I can sleep at night!"

    "I fight this problem on a daily basis and have lost many clients over the years for simply doing what I am supposed to do!"

    "Please fix our broken and fraud-ridden appraisal system now!"

    "Without legitimate appraisals, we have NO idea of true market prices here... look out below!"

    "There should be a way of reporting Agents that apply pressure in the Appraisal process."
    And my personal favorite:
    "Every fax has "Don't do this appraisal if you can't make this ____ value." Banking has become like selling used cars."
    Which states have the worst problems?

    To try to answer this we took the petition data, counted up the petition signatures by state, and ranked each state by the number of petition signers. We then created an "P" for Price Pressure ratio using the petition ranking and population ranking of each state.

    Some states, such as Indiana, have the same rank by population and petition signers–14th in signatures and 14th in population–resulting in a ratio of 100%. Other states, such as Florida, have a rank by petition signers that is twice the state's rank by population, resulting an ratio of 200%. Other states, such as Texas, have a rank by petition signers that is a third of the state's rank by population, resulting in a ratio of 30%. At these extremes, where the ratio diverges far from 100%, is where we find our Pressure or "P" states. At both extremes there is a lot of pressure, but at extreme there is also a lot of appraisers going along with it–and thus few petition signers–or fewer going along with it–and a thus lot of petition signers. The exception is NC. NC has its own petition drive that skews its petition signer rank.

    The result is the iTulip State Appraiser Pressure "P" Chart, below.

    Iowa doesn't even make the list. What about Colorado, Florida, and Massachusetts?

    Of the dozens of provisions of Miller's proposed, belated legislation, here are a few chestnuts, with comments.
    To fight predatory lending, the Attorney General’s bill asks the Legislature to:

    1. Fight unfair lending practices by lenders, mortgage bankers or mortgage brokers:

    * "Flipping" consumers - refinancing their loan without a net tangible benefit.

    Already illegal in most states under existing law.

    * Advertising loan terms that are not available to a reasonable number of qualified applicants.

    Already illegal in most states under existing law.

    * Fabricating a consumer’s income to qualify the consumer for a loan.

    A felony in many states under existing law.

    * Misrepresenting a consumer’s credit rating or status.

    Already illegal in most states under existing law.

    * Making loans without verifying the borrower’s ability to repay the loan.

    A law is required to cause a lender to perform borrower due diligence?

    2. Improve Standards for Mortgage Bankers and Mortgage Brokers. The bill specifies certain standards of conduct for mortgage bankers and mortgage brokers by requiring them to:

    * Safeguard and account for the borrower’s money.

    A law is required to cause a bank to safeguard and account for money?

    * Affirmatively disclose facts that materially affect the borrower’s rights and interests.

    * Make reasonable efforts to comparison-shop for a loan that is reasonably advantageous to the borrower.

    * Put the borrower in a loan that is in the borrower’s best interests.

    The three provisions above will put many lenders out of business.
    If these kinds of laws are widely adopted, the next time Borat comes to the U.S. to buy a house, the realtor will have to have more than two brain cells to rub together.

    Last edited by FRED; 02-21-07 at 10:07 PM.



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