Regulators Fight For Suitability Standards In Mortgage Industry

(Mortgage fraud has become one of the fastest growing white collar crimes across the entire nation. )

In addition to an increasing number of mortgage fraud cases being reported, there has also been a focus on unscrupulous lending practices and dishonest brokers during the slowing housing market.

Obviously, the mortgage industry is under a spotlight and intense scrutiny right now, as regulators attempt to clean up the problems within the industry. There are countless lenders and brokers out there who do the best they possibly can to get the best rates and the loans that are best suited for their clients. But it is those within the industry who are only looking for quick profit that hurt everyone.

Now regulators are trying to impose a new set of “suitability standards” that address the problem of lenders giving loans to their customers that are not a good fit for them at all.

A November 17, 2006 article by Bob Tedeschi of The New York Times, “A move to set ‘suitability standards,’” looks into the new regulations being proposed.

“It still comes as a surprise to many borrowers: Although mortgage lenders and brokers often take care to line them up with loans that best suit their financial interests, there is no legal requirement that they do so.”

“This issue turns on ‘suitability standards,’ which lenders would follow to find loans that fit borrowers’ needs. The model is the relationship between investors and stockbrokers, who, by law, must act with their clients’ best interests in mind.”

Although most lenders are in it to help people, and get them into homes they can afford, there are those out there who are only in it for themselves, as with any industry. This is all just coming at a time when there have been many reports of unethical behavior within the industry.

“In response to a stream of reports suggesting a rise in so-called predatory lending practices, in which unscrupulous brokers or lenders place borrowers in unduly risky loans simply to earn a quick commission, some regulators and advocacy groups have begun calling for laws making lenders more responsible for protecting borrowers’ interests.”

But many mortgage executives claim that additional regulations are not necessary to the business. Federal regulators have already put a different set of guidelines in place earlier this year, so most mortgage execs see any extra legislation as unnecessary.

But the problem comes in the fact that most mortgage brokers rely on commissions, and some would rather get their client in to a risky loan and get some commission, instead of warning them of the potential pitfalls associated with a specific loan.

Those within the mortgage industry are saying that it is also up to the consumer to determine if the loan is right for them or not. People taking out a mortgage undoubtedly must do their homework and research.

“Kurt Pfotenhauer, the senior vice president for government affairs and public policy at the Mortgage Bankers Association, said he expected more discussion of suitability standards when the next Congress convenes. ‘But we believe the consumer is the best one to determine the loan product that’s best for their individual circumstances,’ Mr. Pfotenhauer said.”

“‘Frankly, both parties in the transaction have obligations,’ he added. ‘If it’s the biggest purchase of your life, you have some responsibility to define your needs realistically and learn about your options. The lender has the obligation to make sure it’s easy for people to learn their options. They also have enormous economic incentive to make a successful loan.’”

Basically, this all comes down to both lenders and customers working together as partners to facilitate a workable and understandable mortgage transaction.

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