In a series of articles released over the last two weeks, the National Association of Realtors® underscored an ongoing problem: abusive lending practices and the harmful effects they have on consumers and the economies of which they are a part. For years, real estate professionals have called for fair lending practices and strong underwriting guidelines to govern all home loans and loan marketing practices. However, the recent years’ housing “grab" placed lenders of all types in a favorable position for granting loans to more and more borrowers who are traditionally considered higher risks, such as first-time homebuyers or those will less-than-perfect credit. While not all of these loans could be termed “abusive”, the economy is now seeing the downside of lending practices that were less-than-responsible. The home forclosure rate has skyrocketed and local economies, as well as the national economy at large, has suffered as a result.
NAR President, Pat V. Combs, testified before the Senate Subcommittee on Housing, Transportation and Community Development. In her testimony, she stated that “Realtors® support making fair and affordable mortgage products available for those with less than perfect credit. At the same time, we believe such loans should only be made when it is clear that the borrower can afford to repay it. Responsible lending principles, such as those developed by NAR, need to be implemented to curb predatory lending and to rein in abusive lenders. NAR will continue to work with Congress to address the problems created by irresponsible lending practices”. The “responsible lending principles” mentioned by Ms. Combs include stronger underwriting standards for all lending policies, and that all mortgage originators act in “good faith and with fair dealings” and provide greater flexibility for “unique life circumstances”. She also stated that the NAR will continue to support legislative, regulatory and private sector efforts toward foreclosure avoidance and mitigation, as well as increased funding for programs created to help borrowers make sound decisions, such as consumer education, counseling and financial assistance.
One lending practice specifically singled out is that of certain subprime adjustable rate mortgages (ARMs). These particular mortgages can impose an unaffordable “payment shock” on borrowers when the interest rate resets. They include “2/28” mortgages that have a two-year “teaser rate” that adjusts as often as every six months based on a high margin. In a recent statement released by the federal regulators of banks, thrifts and credit unions that prescribes strong underwriting and consumer protection standards in connection with certain of thes loans. In regards to this recent measure, Combs said the “NAR has worked to do its share to educate consumers about how to avoid predatory lending and find fair and affordable mortgages. For families that now find themselves trapped in an abusive loan, we recently published our newest brochure called ’Learn How to Avoid Foreclosure and Keep Your Home’. To help families avoid predatory lenders altogether, last fall we released a brochure on ’How to Avoid Predatory Lending’.”
Of the many roles a real estate agent may undertake, that of educating their clients and prospects is one of the more important. By remaining informed of the products available for, and standards governing, home and other real estate loans, realtors enhance their ability to serve their clients as well as protect them from predatory lending practices. This service may be one additional way to make sure you become any client’s agent for years to come.