Tag Archives: President Barack Obama

A closer look to be taken at nonbank mortgage lenders

The Consumer Financial Protection Bureau Wednesday disclosed key details about how its examiners will size up mortgage companies that aren’t banks but still offer home loans to consumers, noting it will be leaning on other regulators for help as it embarks on the enormous task of reviewing thousands of nonbank lenders.

The details are crucial given that the consumer watchdog agency, through a supervision program it launched last week, is preparing to bring many of the nation’s nonbank financial companies under federal supervision for the first time.

Consumer Financial Protection Bureau - CFPBThousands of nonbank financial firms are not chartered as banks but still offer mortgage, student and payday loans, and many have faced only light federal scrutiny. The sector has faced criticism from consumer advocates and other groups who say some home lending practices by the nonbank sector contributed to the recent financial crisis.

The consumer bureau noted Wednesday the sector is indeed “a significant part of the mortgage market” that included many of the largest subprime lenders during the housing bubble.

“The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness,” said the consumer bureau’s director Richard Cordray. “Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks.”

The bureau’s new “Mortgage Origination Examination Procedures” guide released Wednesday makes clear the bureau’s examiners will be conducting broad reviews of nonbank mortgage lenders’ business practices and the agency will be coordinating with state regulators and other federal agencies.

Consumer bureau staffers will be examining the companies’ volume of business as well as the types of products and services the firms are offering. Also, the bureau will be evaluating lenders’ advertisements and marketing practices as well as closing practices, another indication that just about every part of a firms’ business model will be under review.

The goal will be to assess whether nonbank mortgage lenders and brokers are in compliance with financial laws.

But the bureau also made clear that, unlike other banking regulators, the watchdog has another focus: identifying risks to consumers.

The bureau, created by the 2010 Dodd-Frank financial overhaul law to root out fraudulent financial practices thought to have contributed to the recent financial crisis, had already been supervising some of the nation’s largest banks. But its powers to oversee nonbank lenders didn’t kick in until last week, when President Barack Obama recess-appointed Cordray as the bureau’s first director. Cordray has said the agency will move forward on programs and probes despite concerns about how the president bypassed the Senate to install him as the agency’s chief.

This article is by the Wall Street Journal, viewable here: “New Bureau Plans Close Look at Nonbank Mortgage Lenders.”

Obama casts lifeline to underwater homeowners

With interest rates at record lows, any homeowner with good enough credit and enough equity to can lower his or her mortgage payment by refinancing the loan.

But that option isn’t available to millions of “underwater” homeowners — people who bought their homes at or near the top of the home-price bubble, only to see their homes’ value drop below the amount they owe after home prices collapsed.

Now, the Obama Administration has unveiled a plan that will let some homeowners refinance their mortgages — and take advantage of lower interest rates — even when they owe more than their home is worth.

Among the provisions will be a measure increasing loan amounts made above the value of the home. The program is being offered under the federal government’s two-year-old Home Affordable Refinance Plan, the Federal Housing Finance Agency announced today.

Currently, the ceiling for refinancing a loan is 125% of a home’s value — for example, a $125,000 mortgage on a home worth $100,000. That ceiling would be removed for fixed-rate mortgages backed by Fannie Mae and Freddie Mac, the FHFA statement said.

Typically, you can only refinance your loan and take advantage of lower interest rates if your home is worth more than the amount you owe. After all, lenders need to have enough collateral in the home to pay off the mortgage if you stop making payments.

This has been a bind for many underwater borrowers who managed to make payments until now, but have been unable to take advantage lower rates. And being able to refinance may help many avoid foreclosure — and reduce housing’s drag on the overall economy.

According to news reports, the new plan likely will help 600,000 to 1 million borrowers refinance their mortgages. MSNBC reported, however, that is only a fraction of the estimated 11 million homeowners who are underwater.

FHFA said that details about the program should be released by Nov. 15.

But highlights include:

  • Eliminating fees for borrowers who refinance into shorter-term loans (for example, converting a 30-year loan into a 15-year).
  • Eliminating the need for a new property appraisal where there is a reliable computer-generated value estimate.
  • Waiving warranties that lenders make on loans sold to or guaranteed by Fannie Mae and Freddie Mac — so Fannie and Freddie won’t force them to buy back loans that go bad.
  • Removing the current ceiling that limits eligibility to those who owe a maximum of 25% more than their home is worth.

Two local mortgage brokers hailed the proposal as a way to help both homeowners and the overall economy.

Paul Scheper, regional manager of Greenlight Financial in Irvine, said the plan will provide a “snorkel” for underwater homeowners with good incomes and credit scores.

“Such a measure would boost the hopes of the homeowner while reducing the credit risk via lower payments of the bank,” Scheper said. “It also helps the economy because this frees up additional funds to inject back into the economy. It’s a classic Win-Win-Win.”

The best news is no appraisal and nominal underwriting rules, added Laguna Niguel mortgage broker Jeff Lazerson.

“There is a great chance each participating borrower is going to save hundreds of dollars per month on his or her house payments,” he said.

Lazerson said the program will encourage more lenders to participate because FHFA essentially promised lenders that Fannie and Freddie won’t have recourse if these loans go bad. That, he said, will increase price competition among lenders.

Lazerson believes the program will be “the single greatest program” to stabilize the housing market.

“Fewer homeowners will be mailing their keys back to their lenders,” Lazerson said. “Next thing you know, we’ll actually be spotting buyers at weekend open houses again.”

Here’s more on the proposed refinancing plan …

This article is from the Orange County Register: Obama casts lifeline to underwater homeowners