WORLD PROPERTY CHANNEL ®

I don't know about you, but I am pleased President Barack Obama and his Administration are finally cracking down on the residential mortgage loan industry.

(For related article, please see July 6 Real Estate Channel posting, Beazer Homes Agrees to Pay $53 million to Settle Mortgage Fraud Charges)

The proposed new agency, the Consumer Financial Protection Agency, or CFPA, will be born this year, Obama has pledged.

A new law, regulating the industry, kicks in Jan. 1, 2010. It's called the Real Estate Settlement Procedures Act, or RESPA.

Few in the mortgage industry today are happy with that coming situation. 

They argue, for example, the new regulations will curb their efforts to craft innovative loans for specific borrowers, and therefore will discriminate against certain loan applicants.

The President says that's horsefeathers.  I agree.  Under the new law, mortgage loan makers will still be able to create custom loan packages for more sophisticated borrowers.

But for the less sophisticated homeowners seeking a loan, the new law mandates that probably 95 per cent of the loans will have to fall in what the industry calls the plain vanilla category.

Simple language.  In English and probably Spanish, too.  And written in a style that even a high school dropout will be able to understand.

No small-type clauses buried on the last page.  And no surprises, in the form of additional or higher fees, when the buyer and seller arrive at the closing table.

All of the fees will have to be spelled out in advance -- clearly, decisively and in a format that even newly naturalized Americans will be able to grasp. 

Additionally, lenders will have to document and personally investigate the financial information the borrower is submitting for a loan or credit card.  No phantom employers providing phantom salaries.  No phony or non-existing bank accounts.

Much of these preliminary requirements already exists in current mortgage applications.  But not in all of them. And that is one of the big reasons the President and his Administration are bringing down the hammer on the entire industry.

Mortgage industry lobbying groups - and there are many - already are sharpening their sabers in a last-ditch attempt to cripple the proposed new regulations.

They argue, for example, this will be the third presidential administration in a row that has tried to make mortgage disclosures clearer, simpler and more concise.

They maintain different stakeholders have different definitions of those terms.

They contend it will be difficult to make a clear document concise, and a concise document clearer.

And, they argue, if a loan isn't simple, the explanation can't be simple, either.

To all of that, the President and his Administration, say Bullsmith.  I do, too. 

The whole idea behind the proposed new regulations is to remove the element of risk for the borrower.  All the borrower is asking for is a simple mortgage loan or a basic credit card contract.

What's wrong with a banker telling you up front, this is the interest rate you will pay on this amount of loan for X-number of years.

If you faithfully make the payments, as scheduled, we will make sure there are no surprises when the loan has been paid off, the banker tells you.

That's a no-brainer.  And most professional mortgage houses will obviously agree.

New regulations also are coming for the credit card industry - and many longtime pros in that field, like the mortgage industry, don't like that idea, either.

Government regulation in any form, at any time, for any industry is not what the founding fathers envisioned  for this nation 233 years ago.  But this time around, some of it is absolutely necessary.

And that's the way I see it - for now.

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