New Borrower Rules Take Effect

	Likely to have major effect on Marin mortgages Beginning Oct. 1, new rules adopted by the Federal Reserve will go into effect, requiring greater diligence on the part of mortgage lenders and brokers who issue high-cost loans for borrowers with less than favorable credit.  The interest rates on these loans are at least 1.5 percentage points greater than the average prime mortgage rate. The regulations, which were finalized in July 2008 and which were not fast tracked after the economic panic, prohibit lenders from making a high-cost mortgage without verifying that a borrower could repay the loan in the conventional way, and not through a foreclosure sale. Large Sums of Mortgage Cash During the height of the market, subprime lenders often would offer loans without requiring borrowers to provide proof that they could make the monthly payments.  In some cases, borrowers used stated income loans, which allowed some borrowers to fabricate annual income figures and buy homes without down payments. Many lenders did not even require documentation. Remember? Sort of a don’t Ask, Don’t Tell policy for borrowers. Although many believe the Federal Reserve’s new rules represent one of the more substantial efforts on the part of the federal government to combat such lending practices, some consumer advocates are concerned.  According to a policy associate at the Center for Responsible Lending, the new regulations do not cover option ARMs, which enable borrowers to choose from several monthly payment options during the loan’s early years. To read the full story, please click here.

Shyster Loan Attorneys Probed by State Bar

The State Bar of California has recently launched numerous investigations against attorneys for misconduct related to loan modifications.  In a rare move, the State Bar has released the names of 16 attorneys under investigation, by opting to waive investigation confidentiality in favor of public protection.  These attorneys have allegedly taken fees from Marin County home owners for promised services, but failed to perform those services or even communicate with their clients who face the possible loss of their homes.  Their non-attorney staff may also be under investigation for unlawfully practicing law.

There is no indication that the CA Department of Real Estate has taken any interest in investigating this issue.

Not all attorneys engaged in loan modifications are unscrupulous.  However, this announcement from the State Bar serves as a good reminder for property owners to be extremely careful when dealing with attorneys and others for loan modifications.  Scam artists may intentionally associate or affiliate themselves with attorneys in an attempt to lend credence to their fraudulent schemes.  For more information contact Jack at 415.302.7787 or jmclaughlin@fhallen.com. The list of attorneys currently under investigation is available at http://calbar.ca.gov/state/calbar/calbar_generic.jsp?cid=10144&n=96395.

Source: CA Association of Realtors