Too little too late?

From the Herald News:

N.J. may home in on broker rules

A consortium of 26 states took steps earlier this week to protect future homeowners from getting saddled with the risky mortgages that have left thousands of New Jersey residents on the brink of losing their properties.

But some housing experts say the guidelines provide too little, too late. That, and New Jersey wasn’t among the states who initially signed on.
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State banking authorities say it’s just a matter of time before New Jersey signs on. Regardless, housing advocates argue that no single set of recommendations can erase the damage done by loose lending standards to homeowners, pension holders and the economy.

On Tuesday, a group of banking regulators agreed to extend new guidelines for federal mortgage brokers to ones charted on the state level — where many experts say the riskiest loans come from.

The guidelines would require brokers ensure that borrowers can afford a loan at its maximum monthly rate, not just an artificially low “teaser” amount. Brokers would also face new restrictions in issuing loans without income verification, which became a commonly abused practice in recent years.

“Hopefully, this will get more of the unscrupulous players out of the industry,” said John Allison, a member of the Conference of State Bank Supervisors from Mississippi.

Unscrupulous brokers have already done extensive damage. On Wednesday, Federal Reserve Board Chairman Ben Bernanke devoted half of his assessment of the American economy to the negative impact of the mortgage and housing markets.
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Homeowners struggling to hang on are in the eye of the storm. New Jersey ranked ninth in the nation for the number of loans in jeopardy of default in May, according to Bargain Network, a company that tracks the industry. In the past three months, more than 12,000 loans went into default in New Jersey, a 25 percent increase from the beginning of this year.

Not all loan defaults turn into foreclosures. But those have been on the rise as well.

In Passaic County, foreclosures are projected to rise by 22 percent this year, an analysis of county Sheriff’s Department statistics shows.

Tighter standards for who can receive a loan would have prevented much of the hardship, according to Melissa Totaro, a West Orange lawyer who previously worked for the Passaic County Legal Aid Society.

“It’s just a matter of common sense,” Totaro said. “Any guidelines are better than just trusting the market.”

Last year, risky loans like these constituted 20 percent of the mortgage market. Most went to low-income borrowers, people with bad credit or those who had personal debt to refinance.

Jacqueline McCormack, spokeswoman for the New York State Banking Department, said that signing onto the guidelines was a no-brainer because they mirror federal ones. “This needs immediate attention,” McCormack said.

But New Jersey regulators opted to ruminate longer on the standards. “We wanted to make sure we understand them before we sign on,” said Marshall McKnight, a spokesman for the state Division of Banking and Insurance.

McKnight said he couldn’t estimate exactly when the state would make a decision, but it should be soon.

The guidelines will give regulators more ammunition to crack down on mortgage brokers that bilk homeowners into a loan they can’t afford. But they don’t outlaw the practice cold.

“One would hope (the guidelines) will be followed. But they don’t have teeth,” said Henry Wolfe of Legal Services of New Jersey.

Totaro, the lawyer, said that any measure helps.

“It’s too late for people who are in foreclosure,” she said. “It’s not too late to stop this craziness and help people in the future.”