What follows is a copy of a letter I sent to several representatives of the Georgia legislature regarding proposed changes in Georgia Mortgage laws:
Honorable Gentlemen and Ladies of the Legislature:
I have been a residential real estate attorney for more than 20 years. My father, who passed away in September, was a real estate attorney for more than 40 years. We have lived through the Jimmy Carter years when interest rates were at 17 or 18%. We survived the early 80s with the Savings and Loan implosion and the RTC. However, I can easily state that the last 24 months have been the most difficult times I have ever experienced in this industry.
Our industry has been battered and bruised as a result of the financial meltdown caused by the sub-prime mortgage debacle beginning in 2007. I would estimate that fully 2/3 of the people who were employed in our industry and earning good livings when the crisis began are now out of the business. Certainly some of these people did not deserve to be employed in positions of financial responsibility, however, most of the persons I know who have been let go are honest and capable hard working employees who were caught up in a mess that they had nothing to do with.
The second half of 2009 has shown some improvement with the first time home-buyer credit and the willingness of lenders to again make loans to credit worthy buyers. Major changes have been implemented by HUD beginning in January, 2010 and these changes have caused problems for everyone in attempting to implement them. I had two closings postponed on Friday due to software glitches with the lenders in attempting to comply with the GFE and HUD-1 requirements. HUD is implementing new guide lines almost weekly which make it harder to qualify for a mortgage loan.
FHA has become the only option for borrowers with less than stellar credit. Their market share of loan originations has probably risen from 10% to about 50% of all loans originated since the lending crisis began. Lenders are afraid to make new loans. The pendulum has swung so far from the excesses of the sub-prime market to an excruciating analysis of the most credit worthy buyers. There are so many federal government programs aimed at the mortgage crisis right now that it is difficult to keep track of them all. It is nearly impossible to convey the sense of overwhelming change taking place every day in our industry.
I was deeply disturbed when I read the AJC article of January 23 whereby it indicated that efforts were being made at mortgage reform in the 2010 General Assembly session under SB 57. The provisions of this proposed bill seem to be ill advised and indicate that its authors are out of touch with the current home lending environment. The first provision of SB 57 seeks to ban yield spread premium (YSP). RESPA regulations which went into effect January 1, 2010 now state that YSP may only be used to benefit the borrower. This would appear to now be a non-issue and that by banning YSP the legislature would foreclose the option of borrowers to seek a lender paid closing cost loan which, in many cases, is an excellent option for borrowers.
The bill also seeks to ban pre-payment penalties on sub-prime loans and make brokers the agent of the borrower for these types of loans. The reality of the market place is that sub-prime loans no longer exist. I closed approximately 700 closings in 2009. I do not recall a single loan transaction that I would consider less that a prime loan. As I stated above, the only option that now exists for borrowers with less than outstanding credit is an FHA loan. They are generally not available to borrowers with less than a 620 credit score and the requirements are being tightened all the time due the huge losses experienced by FHA.
The idea that the broker should become the agent of the borrower is simply ludicrous. So long as the broker acts within the stringent requirements of Federal law they should be exempt from any further level of responsibility with respect to the borrower. HUD has also required that all brokers obtain a national license to originate loans by this spring which will further thin the ranks of our state’s hard working mortgage professionals.
I don’t have a particularly strong opinion regarding the proposed tightening of our foreclosure procedure. I have made a conscious decision not to participate in that area or practice. It may be time that we took another look at our statute and made a few changes. At this time lenders are not rushing to foreclose and that the federal government is continuing to tinker with the situation through HAMP and similar programs. We certainly don’t need to throw any further changes at lenders now.
In conclusion, I would ask that the legislatures understand that our industry is teetering under unprecedented conditions. Now is not the time to consider mortgage reform. The state has many more urgent matters to deal with in my opinion. I appreciate you taking time to read my letter. I publish a weekly e-mail article which goes out to about 700 real estate professionals. A copy of this letter will be part of the next edition. If anyone would care to discuss this further I may be reached by e-mail or at my office.
Ken Chalker, Jr.
Attorney at Law
State Bar No. 005570