Reform and the First Saturday in May

Nancy Russell Vice President CBRB www.nancyarussell.com e-mail: Nancy.Russell@NEMoves.com It happens every April in my home. The fever pitch builds as the last of the Kentucky Derby prep races finishes. My husband says you must be passionate about things in life and one of his passions is horse racing. For the record, I also like horse racing but couldn't read a Daily Racing Form to save my life, nor do I have any desire despite my husband's attempts for the last 24 years to teach me. When I bet, I like to focus on horse's names, colors and numbers. This is not very scientific, but I have fun. So I find myself at the kitchen table two weeks before the Kentucky Derby as my husband pores through past performances, reviewing splits and fractional times, speed figures and other race metrics that I have no idea what they mean. I turn my computer on and browse to the latest Governmental Bill making its way through the House Financial Services Committee on Mortgage Reform. As my husband says, you must be passionate about things in your life and I am passionate about real estate.

H.R. 1728, "The Mortgage Reform and Anti-Predatory Lending Act of 2009" was introduced on March 26, 2009. If passed and made into law, this massive 151-page document will have a far reaching impact on the housing market. Real estate and banking groups are abuzz lining up on either side of this issue. Supporters of the measure say it would have gone a long way in preventing mortgage lending excesses during the real estate boom. Had it been law, some say, this bill would have targeted the very schemes that helped accelerate the collapse like zero down payment, no documentation and negative amortization.

An aspect of this reform bill would discourage lenders from making anything but plain old vanilla 30-year fixed mortgages with prevailing market rates. Full documentation and strict underwriting would be required. First blush, this appears reasonable, however, I have had clients where interest-only and option-ARM loans made sense. A few years ago, I sold a home to a younger couple. The husband was established in business and his wife had an undergraduate nursing degree and was just finishing her Acute/Critical Care Nurse Practitioner. They were able to get into their dream home with an interest-only loan since they were assured of a substantial increase in their income as the wife already had a job commitment at UMass Hospital. If this law was in place, they would to have put their plans and dreams on hold.

Here's another facet of the bill that looks good on the surface, but when you dig in it may have negative effects. If passed, the law would require loan originators to retain at least a 5 percent ownership stake for the duration of the loan. Even if sold, the originator would own a piece of the loss if the loan ultimately defaults. However, this would force a financial hardship on small and mid-sized lending institutions by requiring them to set aside capital to cover potential losses. Today, if a mortgage is sold in the secondary market, the originator of the loan is free and clear of all loan obligations.

Here is something contained in the bill that most people would agree is positive. Mortgage brokers were paid higher fees for steering borrowers to higher rate mortgages and risky mortgage types. If passed, this bill would prohibit loan officers from receiving any fee tied to the interest rate or terms of the mortgage.

There are other items in this reform bill that I will watch closely as it passes to the Senate. Mortgage reform will happen this year and regardless of what the government eventually passes into law, I will be prepared to assist my clients in all aspects of home buying and selling. Now it's close to lunch and my husband is still immersed in trying to come up with a winner. I asked him to read the top Kentucky Derby contenders. In less than a minute, I come up with "Pioneer of the Nile," I like the name.

"Whatever Nancy touches turns to SOLD." Call me at 508-243- 8128 or by e-mail Nancy.Russell@ NEMoves.com. Visit my website at www.nancyarussell. com for more information.