As lawmakers in two states have rejected bills that would have imposed stiffer requirements on mortgage brokers, Wisconsin’s government passed a new broker law. Two broker groups have voiced their support for different federal bills, and legislation introduced in South Carolina could force borrowers into shorter term loans.
Senate Amendment 3962, the Merkley-Klobuchar Amendment, was passed by the U.S. Senate, a move supported by the Upfront Mortgage Brokers Association. The group announced that the amendment was adopted as part of S. 3217, the Restoring American Financial Stability Act, which was passed by the Senate on May 20 and still faced reconciliation with the House passed version.
“Currently, loan originators can increase their commissions by directing borrowers to higher interest rate loans and loans with less favorable terms,” the Lakewood, Colo.-based association stated. “But Senate amendment 3962 has the effect of forcing originators to disclose the fee for their services at the start of the loan process and eliminates any incentive for them to steer borrowers into a particular loan.”
Three House bills — H.R. 5017, Rural Housing Preservation and Stabilization Act of 2010; H.R. 5072, FHA Reform Act of 2010; and H.R. 5114, Flood Insurance Reform Priorities Act of 2010 — were supported in a statement last month by the National Association of Mortgage Brokers.
H.R. 5114 was subsequently approved by the House and approved by the Senate on July 1 — bringing the government flood insurance program back to life.
H.R. 5017 would provide additional budget authority for the U.S. Department of Agriculture to continue to guarantee rural loans and was approved April 27 on the House floor under suspension of the rules. H.R. 5072 was expected to be considered on the House floor in May.
Assembly Bill 591 was signed by Wisconsin Gov. Jim Doyle in March. The state said the new law requires mortgage brokers to act in the best interest of borrowers. It also requires brokers to disclose all material loan facts to borrowers.
Arizona’s SB 1288 proposed a ban on negative-amortization loans, a limit on balloon payments and a requirement to ensure the suitability of the borrower. But Inside Tucson Business reported that the bill did not pass.
SB 57 in Georgia also died, The Augusta Chronicle reported. The bill would have imposed suitability requirements on lenders and more disclosure requirements for mortgage brokers.
H. 4533 was introduced in the South Carolina legislature on Feb. 4, according to documentation provided by the office of South Carolina Rep. Christopher R. Hart. The South Carolina House Democratic Caucus issued an April newsletter indicating that the bill would require lenders and servicers to apply at least 30 percent of the payment towards principal, unless otherwise required by contract or law.
Hart initiated the bill after frustration that only $19 of his payment went to principal, the Free Times reported .
Problem is — long-term mortgages like the 30-year wouldn’t qualify under such a proposal. Using a Bankrate.com amortization calculator, a 30-year loan with a 5 percent interest rate will only wind up with 22 percent of the first payment going towards principal.
And if mortgage rates jump to 10 percent — a level that has been exceeded on several occasions during the past few decades — principal reduction slips to just 5 percent. In that case, even a 15-year mortgage would only leave 22 percent of the payment going towards principal — potentially forcing borrowers into unaffordable 10-year mortgages or exotic programs.
Another South Carolina bill, H. 4534, was also introduced on Feb. 4. That legislation proposes mandatory minimum grace period of 20 days on mortgage payments.
