“Times are tough in the mortgage-lending business.”

From the Record:

Lender laws in works

Times are tough in the mortgage-lending business.

Not only are brokers and bankers coping with a severe credit crunch and a slowdown in loan applications, but they are facing legislation and rule changes on the state and federal levels that could make it harder for them to make loans when the market recovers.

“There really is no need for legislators to get involved in underwriting loans,” said E. Robert Levy, a lawyer and lobbyist who serves as executive director of both the Mortgage Bankers Association of New Jersey and the New Jersey Association of Mortgage Brokers.

The meltdown in the subprime lending market has spawned at least two bills pending in the State House. One would require licensing of the loan officers who act as sales agents for brokers and bankers. The other would require lenders to verify and document a borrower’s ability to repay a loan, and not just at an initial teaser rate that will later go way up.

On the federal level, President Bush and members of Congress, including Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., have floated proposals in recent weeks to protect consumers from lending practices blamed for a surge in foreclosures. The Federal Reserve and bank regulators also have issued new guidelines on subprime lending and are considering more rule changes.

Lenders in Northern New Jersey say Wall Street speculation and a few bad firms in the lending business are mostly to blame for the surge in reckless underwriting. They say that led to a big rise in foreclosures, and that the market already has corrected most of the abuses as investors are no longer providing funding for the types of loans that have caused the most problems.
…
On the state level, at least two proposed laws could affect how mortgage lenders do business.

One would require licensing, training and background checks of mortgage solicitors, more commonly known as loan officers.

Mortgage loan solicitors are neither mortgage brokers nor bankers, but they have direct contact with customers, gathering applications and supporting documents and providing customers with information about the loans. Currently, the only requirement in New Jersey is that they pay a $100 registration fee.
…
But mortgage brokers and bankers generally object to a proposed state law that would require a borrower’s income verification and make it illegal to judge a borrower’s ability to repay an adjustable-rate loan based on a teaser or introductory rate, and not on an estimated rate that reflects how much the payments are likely to rise over time.

They say the law would disqualify many would–be customers and it doesn’t take into account that most people refinance or sell their homes before the term of a loan expires. Teaser rates make sense for many borrowers, especially young professionals who can reasonably expect their income to rise, Levy said.

The proposed state law, which would apply to more types of loans, could, if passed, be subject to federal preemption if the lender is a federally chartered bank or thrift or a subsidiary of a federally chartered bank or thrift.