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New Federal Mortgage Rules Protested By Local Lenders

By Encino Bankruptcy Attorney on June 16, 2013

Local lenders are protesting the new rules set in place by federal regulators working to crack down on flimsy mortgage lending standards – the same kind of risky actions that resulted in the housing crisis and subsequent economic recession.

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Los Angeles foreclosure defense lawyers understand that the discord arises from new federal guidelines issued by the Consumer Financial Protection Bureau‚ an agency itself created in response to the financial crisis. The primary goal of the new standards is to make sure that banks are verifying a consumer’s ability to pay on loans they are granted and shedding other abusive lending practices that later ended up harming the American public.

However‚ the CFPB allowed for exceptions in cases of community banks and credit unions. These entities wouldn’t be held to the same rigorous standards because‚ in theory‚ local lenders would have a better handle on the risks for local borrowers in cases of a qualified mortgage. This would in turn allow marginal borrowers to still get loans to buy a home.

Another reason smaller lenders were given more latitude is that they weren’t seen as being at the crux of the financial meltdown. That was more the bigger lenders. In fact‚ many smaller lenders actually hold on to the mortgages they dole out‚ rather than bundling them and selling them to investors. So‚ federal regulators told them they could carry on‚ business as usual.

But now these smaller lenders are saying that lending outside the rules applied to everyone else is going to make them prime targets for plaintiff attorneys in default cases and also for federal bank regulators in cases of a non-qualified mortgage. So in turn‚ they’re going to respond by whittling down the mortgage lending arm of their operations – something they say will ultimately harm consumers.

They worry that any loan outside strict rules applied to larger lenders is going to automatically be labeled subprime – especially if the borrower has a debt-to-income ratio of 43 percent or higher.

However‚ rather than request some clear and separate guidelines for the smaller operations‚ these entities are demanding that the CFPB scrap consumer protection guidelines altogether. And of course‚ larger lenders are backing this approach as well.

The fewer consumer protections that are in place for folks like us‚ the better it is for the banks‚ who obviously prefer to make their own rules. Although‚ we saw where that got us in 2008.

On the plus side‚ the number of foreclosures in California have fallen sharply during the first quarter of this year. However‚ it’s still a substantial number – more than 18‚500 mortgage default notices on houses and condos during the first three months of the year. That’s a steep 51 percent drop from what the filings were during the previous quarter and a nearly 70 percent decrease from the first quarter of 2012. (A default notice is the first step in California’s formal foreclosure process.)

Default notices were more prevalent in neighborhoods that are economically depressed.

Part of this could be the result of more home loan modifications being hammered out between borrowers and lenders‚ per the multi-billion dollar settlement agreements. Many of those options are still on the table for borrowers who are struggling. We can help strengthen your position to negotiate.

If you are facing foreclosure in Los Angeles‚ contact Nader‚ Naraghi & Woodcock‚ APLC to schedule your free consultation. Call (800) 568-0707.

Additional Resources:
Local lenders say U.S. ‘qualified mortgage’ rules go too far‚ May 27‚ 2013‚ By E. Scott Reckard‚ Los Angeles Times


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