Mortgage Bankers Weigh Pros and Cons of New Legislation

[NJBIZ]

Mortgage Bankers Weigh Pros and Cons of New Legislation
Industry Report: Mortgage Bankers and Brokers
By Evelyn Lee
8/4/2008


In an effort to mitigate the effects of the subprime mortgage crisis, new proposed legislation in New Jersey is aimed at protecting mortgage borrowers from foreclosure. But the state’s mortgage banking companies say the regulations would likely have a mixed impact on their business.
The Save New Jersey Homes Act of 2008 (A2780/S1853), which the Legislature passed in June, allows eligible borrowers to extend for three years the introductory rate on a mortgage prior to the rate resetting. The creditor in turn places a lien on the borrower’s property to ensure the repayment of the interest deferred during the period of extension.

The bill, which awaits Gov. Jon S. Corzine’s signature to become law, would assist struggling borrowers to make their mortgage payments, says E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey in Springfield. Borrowers would have more time to adjust their finances in order to continue to make their payments, as well as work with their lenders to modify mortgage loan terms and resolve foreclosure disputes, according to the bill.

Mortgage lenders would benefit and continue to receive payments from borrowers, Levy says. “You lose money when you have to foreclose. You’re going to have to maintain the property; you’re going to have to pay taxes and insurance [instead of the borrower],” he says.

But the bill might also cause mortgage companies to lose revenue because fewer borrowers would refinance their loans if the low introductory rates on their mortgages are extended for three years, says David Siegel, director of business development at the Teaneck office of Aurora Financial Group, a Marlton-based mortgage banking company.

“Right now, the refinancing business that we see comes from people who have these adjustable rates that are resetting and they’re looking to get a fixed rate,” says Siegel. He estimates that about 30 percent of Aurora’s business currently comes from refinancing.

Another bill (A1594) would require mortgage originators to be licensed under the state Department of Banking and Insurance in order to issue loans to homebuyers. Uneducated and unlicensed mortgage lenders helped contribute to the subprime mortgage problem, says Jim Silkensen, president of the New Jersey League of Community Bankers in Cranford. “A huge amount of those mortgages were made to people that in no way should ever have gotten mortgages,” he says.

The proposed legislation, which was introduced in January, would help to improve lending practices, says Siegel. “It will create a barrier of entry, and it will help to clean up the industry,” he says, explaining that many people previously were able to become part-time loan officers without any education or training. Requiring licensing would help lenders to better understand the products they are selling and prevent them from recommending the wrong product to a customer, he says.

“Anytime you have people who are not educated in products they’re selling, it can cause a black eye to the industry,” says Siegel. “It will generally help the industry if the people representing it are better qualified.”

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