The federal government has once again stepped into the fray of trying to close another barn door after the cows have all left the barn. They’ve proposed putting more “teeth” into how lenders should approach the Sub-Prime and Alt-A borrowers relating to disclose and if they do it improperly, the borrowers will have recourse and sue the lender. Sounds like a lot of election year rhetoric to me.

Okay, so let’s get this straight; the borrower goes into default because of a loan reset and loses their home, getting put out on the street. Now they have to re-group and find the attorney (probably pretty easy) who is going to try to begin to build a case against the lender for mal-practice in the lending arena. The lawyer will make money for sure. If the borrower loses, they will be out ten-of-thousands of dollars in attorney and court fees. The lender has on-staff legal counsel and defending the lender is what they do for a living. In other words, the borrower gets the “short-straw” once again. This proposed legislation is election year hype.

Let’s try this. Create a cut-and-dried checklist that the borrower has to go through prior to making a loan. Create a center, staffed by attorneys, where the borrowers can go, or interact with counsel online to make sure the borrower covers off on every point of the checklist. This way, the borrower has received advice up-front; the lender has been compliant with the new lending rules (NOT GUIDELINES, RULES!) so everyone knows what they are getting into from the start. This should be up to and including what the specific fines will be for various infractions should they occur.

If the lender violates these guidelines, here’s what happens;

1) They automatically pay the fine, no court room, no appeal, just pay the fine to the borrower and get a court satisfaction of the summary judgment...
2) The borrower’s notice of default action is suspended until the fine has been paid and the loan has re-conformed to what it was prior to the violation. The borrower is, of course, still obligated to make payments.
3) Life goes on as it was prior to the lender violation until the terms of the loan dictate otherwise.

The only way we will achieve behavioral modification with lenders is to hit them in the pocketbook. The only way this legislation will be worth a damn is if the women and men of the U.S. Congress step up and do what’s right by consumers, and not the big money people behind the mortgage lending world.