The Washington State Legislature has passed three new laws that will go into effect June 12, 2008.
SHB 2770
Governor Gregoire’s legislation implementing the recommendations of the Homeownership Task Force. This legislation impacts Banks, Credit Unions, the Consumer Loan Act (CLA), and the MBPA. The bill addresses prepayment penalties, negative amortization loans, the federal guidance on nontraditional mortgage products and subprime lending, and makes mortgage fraud a class B felony.
SHB 2770 PDF
SHB 2770 Summary
SHB 2270 Final Bill Report
Interesting highlights from the Final Bill Report:
The DFI must adopt a disclosure summary understandable to the average person that includes:
• the fees and discount points on the loan;
• the interest rate of the loan;
• the broker’s yield spread premium;
• the presence of any prepayment penalties;
• the presence of a balloon payment;
• whether or not property taxes and property insurance is escrowed; and
• other key terms and conditions of the loan.
A residential mortgage loan may not be made unless the summary is provided by a financial institution to a borrower within three days of a loan application. If the terms of the loan change, a new summary must be provided to the borrower within three days of the change or at least three days before closing, whichever is earlier.
Steering
A person subject to licensing under the MBPA or the Consumer Loan Act may not steer, counsel, or direct any potential borrower to accept a residential mortgage loan with a risk grade less favorable than what the borrower would qualify for under the lender’s existing underwriting standards. The licensee must prudently apply the underwriting standards to the information provided by the borrower.
Prepayment Penalties
A financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty that extends beyond 60 days prior to the initial reset of an adjustable rate mortgage.
Negative Amortization
A financial institution may not make or facilitate the origination of a residential mortgage loan
that is subject to the Guidance and Statement if the loan includes any provisions that result in
negative amortization for a borrower.
SB 6471
This legislation amends the CLA and MBPA. All lenders, except those making loans under chapter 63.14 RCW, must have a license under the Consumer Loan Act. Lending is no longer allowed under the MBPA. Read the FINAL BILL REPORT link below. There is a lot of concern and confusion over this change. More info is forthcoming at the next Mortgage Broker Commission meeting on May 13, 2008.
SB 6471 PDF
SB 6471 Summary
SB 6471 Final Bill Report
SB 6381
Establishes a fiduciary duty relationship between a mortgage broker and his or her client.
SB 6381 PDF
SB 6381 Summary
SB 6381 Final Bill Report
Other links:
Here’s a quick overview from the Wash State Housing Finance Commission.
I think it’s an improvement to the current system but I think the massive number of disclosures that a homebuyer is presented with is overwhelming. From the agency disclosure to the seller disclosure to the basic purchase contract, finance agreement and the list goes on. Then they walk in to a mortgage broker or banker and have more that they are faced with. It seems to me a better process still needs to be adopted. As well as allowing the consumer to have some responsibility in this process too!
I’m all for making disclosures easier for the consumer to understand. Long overdue. When i sit with my clients i go slow and explain all costs and every form. Thats my job.
I feel that this is another great tool we have for our clients to help them understand the niddy griddy of each loan in detail. I agree with having this be another form or disclosure that is needed along with all the paperwork that is already required but it will prevent some future complaints to the BBB and DFI because they will be able to see nice and clear what they are getting into. This also gives us more credibility to cover everything up front so our clients do not feel they are being taken advantage of when we both review this disclosure together. I think this is a great change.
The brokers I process for have been already using this disclosure. I believe it is a very precise and simplified tool. If an LO goes over every aspect of the GFE with the client there should be no real difference from the new disclosure. All of my LO’s also re-disclose an updated GFE and broker fee disclosure to their clients 3 days before signing their final documents. Educate!Educate!Educate!
Many of these changes are retorical. Most of these items are already required thru proper disclosure and part of the ethical broker or lenders Standard Operating Procedure [SOP].We pay these people in Olympia and Washington to think up new ways of presenting the same old thing, and complicating our lives.
So far these new laws sound good to me. That doesn’t mean someone won’t find a loop hole and the law will have to be mended. However if the consumer won’t educate themselves with what’s out there, it seems to me these laws will make them aware of what they are getting into.
The proposed disclosure already exitsts. I think there are too many disclosures, very confusing to the consumer. Very often when you have consumer sign the forms, they dont even want to read it. Too much! I think all the disclosures has to be shrunk into 2-3 pages, basicly outlinng the loan, total earned by LO, and details of the loan ( fixed, ARM, etc.). It will be good for the borrower to take and simply compare. I think the more simple it is the better.
Although I do like the fact that borrowers have an easier understanding of their loan terms, it’s more paperwork for the
LO’s. I’m not sure if this will have a major impact on the consumer’s ability to understand what the loan terms mean.
I’ve sat down with many of my clients and explained what everything meant and I got the consensus that unless your client already has
a general or extensive knowledge of finances and/or mortgages, the
average joe is not easily taught. Maybe there should be a mandatory home loan course that consumers should take and a test that they should pass. The banks cannot take all the fault for these default mortgages. Consumers should uphold their reponsibility as well.
A disclosure summary that is understandable to the average person is a good thing. This should help the consumer understand all the terms of the loan documents and reduce fraud. One point I would like to make is that ALL REVERSE MORTGAGES ARE NEGATIVE AMORTIZATION LOANS. These bills should take into account that some seniors over 62 may want to access equity in their homes for what ever reason. I’ve seen seniors use this as away to simple stay in their homes. The more competition the better for the clients.I really wasn’t surprised that this passed 47 to 0 and 93 to 0.
The disclosure summary is very easy to understand, and helps the consumer feel at ease with all the bad press out there.
I’m not much of a fan of our Governor, she doesn’t seem to take a real look at anything and has no idea what is like to actually run or own a business. Shes all public service and I guess more documentation doesn’t really through her for a loop like these disclosures which say the same thing over and over.
Don’t get me wrong, I’m for all of us playing by the same rules and protecting the consumer, and national licensing!
Since it is my practice to educate my clients as much as possible with the entire loan process I find the new forms and disclosures very simple to explain. If there is duplication then we just have one more opportunity to ensure the consumer understands the loan process and fees.
New legislation being passed is a great thing assuming it meets the needs of both the consumers as well as the local business men like me trying to help these people. This government is supposed to be by the people and for the people. I think a lot of these folks have lost track of who pays their salary… ME the TAX PAYER. It is there job to protect the consumer and promote business through this legislation. From what I can tell it seems to do just that but I could be wrong… Politicians have lied before.
In some regards I agree with Toby’s response. If we have been ethical LO’s we have always made absolute sure our customers know what they are obligating to. The “liars, cheats and thieves” will always find a way to shadow the truth. However, if it reduces the time I take to make all the costs transparent to the borrower I am all for it. Now, if you really want transparency, government or our own industry would develope a disclosure that includes the national average of mortgage costs for a “like kind product” running right along side of the numbers on the borrowers TIL/GFE, now you have stopped the “preditory LO”. Does that scare anybody out there cutting a “fat hog” on the YSP. It should. If we don’t take an active role in professionalizing the field we work in we will see measures taken by government that won’t benefit the industry. I’m not in complete agreement with the CLA provisions. I would like to see all lending of money encompassed by government regulation kept on a level playing field, not giving a financial advantage to any sector. I must be dreaming???
I like the new disclosure forms and find they work very well in explaining fees to clients. It ouwld be great if they were all standard, I broker most loans and each lender has different forms which take me a minuete or two to process the information correctly let alone explain to my borrower. One of the first things I do when taking an appplication is explain the GFE/TIL to the borrower, this helps meet the 3 days requirement. Everyone in business should make a reasonable profit and disclosing that profit to the consumer should not be a problem.
The more disclosure the better. My broker is already using a similar form. Frankly, I find it easier to explain. I also like the idea of being licensed under the CLA so that all companies will have to adhere to fiduciary responsibility. After all, we are here to serve the home buyer and make the already nerve wrecking experience better for them.
Too much disclosure is almost as bad as too little. I think most consumers trust the person they’re doing business with to point out the important things they should know about. Over the years I have found that explaining the negatives rarely killed a sale. On the other hand there was hell to pay if they figured out afterwards something that mattered was not mentioned or pointed out.
The disclosure requirements won’t stop a transaction and will protect the LO from future headaches.