"Homeownership Preservation and Protection Act of 2007"

by Florida's #1 Mortgage Planner on December 13, 2007

I have been reviewing the proposed bill formulated by Senator Dodd and, once Senate Bill Screws Consumer again, there are provisions that will screw the consumer more than protect them.

Please keep in mind that I am not against legislation that works in favor of the consumer, but provisions in both the House’s "Mortgage Reform and Anti-Predatory Lending Act of 2007" and this bill will actually hurt the consumer by making it harder to obtain potentially the best loan solution for them.  Both bills do have some good provisions, but its the harmful ones, such as outright prohibiting Yield Spread Premiums (YSPs) from being used.

In the House’s "Mortgage Reform and Anti-Predatory Lending Act of 2007", there was an amendment to allow YSP when used to pay for justifiable fees as part of paying for the closing costs associated with the loan.  The Senate’s "Homeownership Preservation and Protection Act of 2007" does not allow for that on many beneficial types of loans.  There are similar limitations on other types of loans.

When it comes to the use of YSP in the Senate’s version, it is prohibited on all subprime and "nontraditional loans".  Nontraditional loans include interest only loans, thereby minimizing the access to a proven beneficial program.  Strangely enough, for high cost loans, YSP is allowed so long as it is not used to "steer" borrowers into a high cost loan when they can qualify for a better loan.  (There may be a few times when these limits will actually force borrowers into the high cost loan).

The Senate version also adds the requirement to escrow for any subprime or nontraditional loan.  While for subprime this is a good thing, for interest only loans it is not.  Why?  Most homeowners who use the interest only loans are financially savvy and would be better off waiving escrows.  Another limitation that would hurt many homeowners.

Limitations on low and no documentation loans may be excessive.  In fact, it leaves the Federal Reserve in charge as to what is deemed appropriate and they will likely not allow much.  This puts severe strains on small business owners and commission based workers that need the stated income programs to qualify.

So, once again the government is going after implementing legislation that will ultimately harm the consumer.  Also, as I mentioned before, there are good provisions, even many aimed at limiting mortgage brokers from screwing their clients for money which I agree with.  The points I made here are targeting provisions that will do more harm than good for the American homeowner.

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