Regulator Keeps Money Flowing for Homebuyers
In June, some major lenders threatened to stop making home loans in Colorado after they disagreed with new requirements the state placed on mortgage providers.
Erin Toll, director of the Colorado Division of Real Estate, quickly issued a statement to reassure the lenders that the state wasn’t looking to ban products as it regulated lending practices.
“I took it seriously,” Toll said of the threats.
Her quick response won accolades from the local mortgage industry, even though lenders remain nervous about the tighter rules they face.
“Having the right people in place stemmed what could have been a broader exodus,” said Bill Kidwell, president of the Colorado Association of Mortgage Brokers.
Among the lenders who either pulled loan products from the state or considered it were OptionOne Mortgage, IndyMac, SunTrust Mortgage and Aurora Loan Services, Kidwell said.
OptionOne and Aurora Loan Services came back, and IndyMac didn’t withdraw, reflecting the division’s response and lobbying by mortgage brokers.
Others did stop issuing certain loans. But their departure reflected a brewing credit crunch in July and August that made unconventional home loans much more difficult to finance, Kidwell said.
That credit crunch has further complicated the delicate balancing act state regulators like Toll must walk.
“Consumer protection is our mission,” Toll said.
But consumers don’t benefit if regulations make mortgages more difficult to obtain.
Toll invited the industry to join a task force hammering out the details behind the new laws.
Two issues have proved especially contentious.
Mortgage providers must show that loans are reasonable and benefit borrowers, and they must also disclose more about how they are compensated.
In recent years, some brokers and lenders placed borrowers in loans they couldn’t afford over the long term, with heavy prepayment penalties that kept them from refinancing.
Often, such products paid a fatter commission than more traditional loans.
Colorado is the first state to require such in-depth disclosure of compensation, Toll said, although discussions are underway to require it nationally.
Kidwell argues that consumers have all the information they need to understand a loan’s financial costs with the already disclosed interest rate and statement of fees. More disclosures would likely only confuse rather than clarify, he said.
“It is a balancing act between disclosure and meaningful disclosure,” Toll acknowledges.
Toll’s staff also has eliminated large backlogs of complaints against real estate brokers and appraisers.
Toll said she believes a few bad actors lowered the bar of what was acceptable for an entire industry.
Her goal is to create an environment where consumers can trust the people they work with when they buy or sell a home or obtain a mortgage.
In the end, that will benefit mortgage providers as well, she said.