| First, an update on the Frank Bill. The bill started off with some consumer support, because it was similar to an earlier bill written by Rep. Brad Miller. However, Frank in his position as chairman, has effectively not only made this a do-nothing bill, but instead made it a net negative one. Because of that, a number of groups (ACORN, USPIRG, the National Consumer Law Center, National Community Reinvestment Coalition and others) have yanked their support. This is a bad, bad bill, that will do more harm than good. It must be stopped. Send a quick fax here, and let your Reps know that this giveaway to Wall Street is unacceptable.
Mortgage brokers, and YSP's are easy to pick on, because for many people they are the face of a out-of-control industry that is ruining the lives of homeowners across the Country. However, it is important to put mortgage brokers in their context. Think about this as a drug operation. If, as my consumer advocate dad likes to put it, companies are effectively selling consumers 'credit heroin'- mortgage brokers are the street dealers. Yes, what they do is wrong. But, only going after them will not end the sale of heroin, and the resulting foreclosure epidemic in our Country.
In fact, some banks with thousands of foreclosures have either 1)already banned yield-spread premiums or 2) don't have brokered loans. Instead, they make the loans themselves, with their own loan officers. Is this a magical cure? No. Countrywide for example, generally used its own loan officers, and they made scores of awful loans.
The now defunct Ameriquest made its own loans, too. They both cut out the mortgage broker, and guess what? In recent years, they sent (and are still sending) more homeowners into foreclosure than just about anyone else in the Country.
Of course, after being weakened, the new law doesn't even appear to ban YSP's and steering people into crappy loans, and instead focuses on disclosures. As one broker eloquently said in an interview about disclosures (P. 20): They don't mean shit. Demanding more disclosure has just about the same effect as doing nothing.
So, what is the solution? The problem is that a lot of lending legislation that has been tried has been reactive. You see a bad product, it ruins the lives of homeowners, you try to ban the product. Tic, tac, toe. Or, there is a bad lender, their loans ruin the lives of homeowners, you eventually go after them, and they go out of business. Tic tac toe.
For American homeowners, the end result is not some big change: it is new lenders and new loan products, and more homeowners going into foreclosure. (And, of course, just because someone like Ameriquest goes out of business doesn't mean thousands upon thousands of troubles homeowners are off the hook.)
If you want to be proactive about this crisis, you need to do two things. First, you must, must, must make the secondary market accountable. Why? Because if you make a law that says a homeowner has a remedy (if, they can use a law to defend themselves against a foreclosure), you must, must, must make it applicable to more than just the original lending company. Why?
As my consumer advocate father said on here and on my blog: (emphasis added)
It is my experience that the original lender is NEVER the entity that is foreclosing, and is often out of business at the time the abusive quality of the loan is discovered. To be meaningful, any lending standards applied to the front end of a loan must be enforceable against subsequent holders of the loan, particularly when the homeowner is being threatened with a foreclosure. Given that it is precisely the secondary market that has driven the demand for the abusive loans now going bad, it is unconscionable that this very market would be protected from irresponsible and destructive lending practices.
Wall Street is behind this whole, entire mess. And they will, with this bill, continue to be shielded from the consequences. (Please note: market corrections and write offs don't count. Their stocks taking hits do not count. Because to the millions of people with these loans, they are still getting foreclosed on, and losing their homes, market corrections or not.)
Secondly, instead of only going after specific loan products, we need to make this much simpler, and say that like the securities industry, there needs to be a suitability standard for loans. Or, as some States have begin to try, you can have a tangible net benefit standard. Those are the kind of things that will proactive, and guard against problem of constantly evolving products.
So, back to the Barney Frank bill. Not only does it not do #1 or #2, but worst of all, it preempts state legislation that actually does do them. DC has sat on its butt for years as neighborhoods have crumbled. In the face of GOP inaction, advocates have forced some states to actually protect homeowners. Now, with this bill, Barney Frank will provide homeowners with little additional meaningful protections, and in fact, actually immunize Wall Street in States where legislators have actually acted.
So, instead of a weak, do nothing bill, we now have the Democratic Congress proposing a weak, do something bill. Unfortunately, what that action is, is cutting state laws off at the knees, all in the interest of protecting Wall Street.
Look behind the curtain, friends, and see who is pulling the switches. And then ask yourself this, if Wall Street is one side, and consumers are on another, where should we be?
Take action here, and lets stop this thing. |
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