From the New Jersey Department of Banking and Insurance:
BULLETIN NO. 07-01 – GUIDANCE ON NON-TRADITIONAL MORTGAGE PRODUCT RISKS
On November 14, 2006 the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) issued guidance on nontraditional mortgage product risks. This guidance is parallel to the final guidance published on October 4, 2006 in the Federal Register which was issued by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance corporation (FDIC), the Office of Thrift Supervision (OTS) and the National Credit Union Administration (NCUA).
The New Jersey Department of Banking and Insurance fully endorses this guidance on non-traditional mortgage product risks. The CSBS and AARMR guidance has been posted on the CSBS’s website which is located at http://www.csbs.org. All New Jersey licensed mortgage bankers, correspondent mortgage bankers, mortgage brokers, secondary lenders, their officers, directors and employees, and their registered mortgage solicitors are encouraged to review and follow this guidance.
The Department strongly agrees with the points stressed in the guidance that practices involving collateral-dependent loans, risk layering, reduced documentation, simultaneous second-lien loans, introductory interest rates and potential “payment shock,” lending to subprime borrowers and non-owner occupied investor loans carry a higher than normal risk to both the lender and the borrower.
The Department views the guidance as setting industry-wide best practices standards. Accordingly, the Department is considering rulemaking in this area or, where necessary, seeking
legislation.
I just want to take a moment to thank Commissioner Steven Goldman and Director Terry McEwen for taking the time to discuss the non-traditional mortgage guidance with me over the past month.
jb
This is absolutely wonderful!
I hope this makes a difference.
What options do 2004 (through 2006) subprime/investor ARMers have when the rates reset?
quote:
Accordingly, the Department is considering rulemaking in this area or, where necessary, seeking legislation.
end of quote.
If they do enforce their guidelines that would be a shock for home prices – may be people who are in this country illegaly will not be able to get a Federally Insured Home Loan????
But what legal effect does this have? I can see that compliance with “best practices” might serve as a defense against lawsuits, but I doubt it’s a better defense because NJ endorsed it. Wouldn’t they have to do a bit more than “encourage” and “strongly agree” to change practices?
If they go to rules, or if they established different oversight standards for non-complying originators, that would have some practical effect. This is not a criticism of NJ Dept of Banking & Insurance. Generally these departments have legal limitations as to what regulations they can make without statutory authorization.
The guidance is a step in the right direction, however, do realize that the guidance in no way eliminates these types of mortgages.
jb
The guidance – is a big step, at lease goverment accepts, that there is some need for regulation and control.
For those interested in reading the full text of the guidance, it can be found here:
GUIDANCE ON NONTRADITIONAL MORTGAGE PRODUCT RISKS
jb
Here is an example of somewhat strict legislative changes (Ohio). Page 21 is a good summary of the changes.
http://www.oamb.org/legislative/sb185ag.pdf
jb
Apparently this new legislation is like garlic to subprime
vampireslenders.jb
One could write the New Jersey Department of Banking and Insurance a formal letter called a “Petition for Rulemaking” pursuant to the Administrative Procedures Act. While it wouldn’t force them to adopt a rule, it would require them to formally respond to the request in the New Jersey Register with a decision and justification for their decision. It adds to the pressure for them to act.
“encouraged”? Hah!
Talk about lipservice!
Good, now I’m 100% convinced I should go for another 1yr CD (overseas, of course)
James,
“Apparently this new legislation is like garlic to subprime lenders”
Do you know of any specific instance where a loan has been turned down because of the new guidelines?
When are lenders supposed to adopt these guidelines?
RentingInNj,
I agree.
njrebear,
I was referring to the Ohio predatory lending legislation, not the CSBS guidance.
jb
If you haven’t voted for your favorite regional real estate blog yet (which is this blog, of course), please take the time to vote!
http://www.housingwire.com/2007-rebas/
We missed being nominated, but rumour has it that we’re running a very close second at this point. Please, if you haven’t, take the time to vote! You’ll need to write in your vote however, so just cut/paste the following:
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Thanks!
jb
http://www.flippernation.com/
f3rd episode is up.
From Reuters:
Puerto Rico’s Popular quits US subprime business
Popular Inc., Puerto Rico’s largest banking group, said on Tuesday its U.S. consumer finance unit will exit the wholesale subprime mortgage origination business, resulting in charges of $39 million.
The San Juan-based company, parent of Banco Popular, said that as part of a restructuring, Popular Financial Holdings Inc. will instead focus on profitable businesses, and merge support functions with Banco Popular North America.
The company is the latest of many to curtail or get out of U.S. subprime originations, which involves lending to consumers with less-than-stellar credit histories.
Profits in the sector have shriveled due to increasing competition for a shrinking pool of borrowers, and amid signs that defaults and delinquencies are rising.
INTERESTING STUFF
I GOT 5YR ARM -CONDO
10YR IO ON MY TWO FAMILY
MAYBE IM OVER EXPOSED
I think that at least what this sort of guidance provides is a measuring stick a Plaintiff’s attorney can utilize as a sword for the imposition of liability when suing a mortgage broker who is involved in making suicide loans after this guidance is issued.
http://forum.brokeroutpost.com/loans/forum/2/84318.htm
Fermont goes down?
As far as i know, Fermont is like the 5th largest subprime lender. Way above MLN.
more on # 9
http://forum.brokeroutpost.com/loans/forum/2/72908.htm