Following the global financial collapse, the public perception of mortgage lenders has never been more tainted. However, a new voluntary mortgage watchdog is now working to enhance industry-wide lending standards in order to ensure that those applying for a mortgage get a fair deal and only borrow when it is in their best interests to do so.
The New Mortgage Watchdog
The Fair Mortgage Collaborative is a non-profit organization that has been formed to improve the relationship between borrowers and mortgage lenders. It seeks to achieve this objective by improving industry standards through a series of new mortgage regulations which it seeks to enforce.
The Objective of Mortgage Regulation
The aim of the mortgage watchdog is to ensure that loans are only offered to those who can legitimately afford them without creating financial hardship further down-the-line. The other objective is to monitor and reward those providers that comply with the new mortgage regulations by awarding certifications. This allows consumers to quickly identify the lenders who are acting most fairly.
How Will the New Lending Standards Help Borrowers?
- Those that subscribe to the new mortgage regulations will need to prove that they are acting in the borrowers best interests. This will involve a series of audits and continuous monitoring to make sure that they are complying with the Fair Mortgage Collaborative's rules.
- Borrowers must be considered for a 30-year fixed-rate mortgage before other loan products. It doesn't present a problem if the borrower has a clear reason for selecting a different product, but there must be clear benefits that are easy for the mortgage watchdog to verify when an audit takes place.
- No more variable rate mortgages will be offered when a debt-to-income ratio is already high. This will prevent problems with home repossession in the future when interest rates inevitably rise.
- Lenders who offer high risk loans to a large percentage of borrowers can be easily weeded-out.
Brad Strothkamp, an analyst with Forrester Research, said that: “If this organization can help point consumers in the direction of lenders who have their best interests at heart, that is not only something consumers would get behind, but also the government.”
Who Has Signed-up to the New Mortgage Regulations?
Eight members have currently signed-up for the new mortgage regulation code. These include online broker Mortgage Grader and a debt counseling and loan referrals provider called Neighborhood Housing Services. However, these current members have a connection to approximately 300 mortgage lenders. Howard Banker, the collaborative’s executive director, believes that the new mortgage watchdog will have as many as 35 members before the end of 2009.
Whilst a voluntary mortgage watchdog may sound like a toothless animal, this will not be the case. Whilst JP Morgan Chase, Bank of America, Wells Fargo and Citigroup have yet to sign-up, negotiations are taking place. The Fair Mortgage Collaborative are optimistic that they will sign up before the end of the year and have to adhere to their lending standards.
Source
Tedeschi, Bob. (July 31, 2009). "A mortgage watchdog group is born." The New York Times.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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