From the Record:
E. Robert Levy, the mortgage industry’s top lobbyist in New Jersey, has been talking lately about the need to simplify disclosures given to consumers on the terms and conditions of loans.
Q. What are you saying to lawmakers you have spoken to?
I told them we must avoid draconian measures that will hurt consumers and make it make it more difficult for renters to become homeowners.
Q. What kind of loans are most to blame for the rising defaults?
It’s expected that the stated-income loans [which do not require borrowers to provide pay stubs, tax documents or other proof of income], the low-documentation and no-documentation loans, the payment-option ARMs [adjustable-rate mortgages] with negative amortization and the interest-only loans, will likely be the ones that were problematic.
Then you have the mortgages that were closed with the borrower qualified at the initial teaser rates, and when the rates adjusted upward, borrowers were not prepared to make higher payments.
Obviously it’s a problem we don’t want to see occur again. But the point has to be made that 85 percent or more of the subprime borrowers are paying according to their terms.
The stated-income loans are subject to abuse and the industry is going to rethink whether that loan product is continued. Some of the problems came from customers giving inaccurate information which is, in essence, mortgage fraud.
Q. Congress is considering requiring lenders to qualify borrowers who apply for certain adjustable-rate loans based on the long-term repayment costs, not just teaser rates. Do you support that?
The [existing] non-traditional guidance [which applies to option ARMS and interest-only loans] is OK, but should be limited to those products.
If underwriting is based on fully indexed rates, there will be a number of customers who will not qualify for home loans.
If you are going to make that decision, it depends on whether you want to increase homeownership or decide that some consumers should not get loans.
Q. Lawmakers also are talking about requiring improved disclosure of loan terms and conditions. Is that a good idea?
I think disclosures are not working as well as they should. We provide way too much paperwork to consumers who do not fully comprehend the nature of the loans.
Q. Would you describe the present state of affairs in the mortgage industry as a crisis?
No. There will be a major shakeout nationwide and in New Jersey as well. But the market will adjust. There’s going to be a tightening of credit and there will be problems for some consumers getting a loan. While it’s distressing, it kind of cleanses the market.