Fannie draws lender barbs

`Bill of rights' for homebuyers is questioned

'What is the point?'

Mortgage industry thinks consumers already protected

February 13, 2000|By Martin Schneider | Martin Schneider,SPECIAL TO THE SUN

Area mortgage lenders are shrugging their shoulders at consumer-protection measures announced last month by Fannie Mae, calling the "Mortgage Consumer's Bill of Rights" proposed by the nation's largest supplier of mortgage funds "nothing new."

"They're making statements, and they are really nice statements, but that's all they are. What is the point of calling for a bill of rights if the laws are already in place that are supposed to guarantee these things?" said Joseph Brown Jr., owner of Premier Equity Mortgage in Baltimore and president of the Maryland Association of Mortgage Brokers.

Fannie Mae's chairman and chief executive officer, Franklin D. Raines, announced the Bill of Rights at the National Association of Home Builders' annual convention in Dallas, and called for the mortgage industry to advocate five basic rights that consumers should have in the lending process.

Raines said consumers should have the right to access mortgage credit, know the true cost of a mortgage, obtain the lowest-cost mortgage for which they qualify, be free of regulatory burden and know what is behind a lender's mortgage decision.

Fannie Mae buys mortgages issued by banks, thrift institutions and other mortgage lenders, and then packages the loans and sells them to investors as mortgage-backed securities. When Fannie Mae buys mortgages from lenders, the lenders are provided with the cash needed to issue new mortgages. Consequently, lenders must follow underwriting guidelines issued by Fannie Mae.

Big financial decision

"Taxi passengers, HMO members and consumers across the board are getting their bill of rights. Why shouldn't mortgage applicants, who are making the biggest financial decision of their lives," Raines said in his speech.

In announcing the measure, Raines said the "Bill of Rights" would strengthen homebuilders and mortgage lenders as well as consumers, but the announcement met with distrust from some in Baltimore's mortgage community.

"I would like to know what Fannie Mae is trying to do here -- what is their true purpose? The Bill of Rights certainly does not introduce anything revolutionary or even anything new," Brown said.

Al Ingraham, vice president of MNC Mortgage Corp. in Baltimore and vice president of the Greater Baltimore Board of Realtors, said Fannie Mae's announcement simply detailed what is already going on in the mortgage industry.

"We in the industry definitely feel that the consumer has a right to fully understand the lending process and know what their true cost will be," Ingraham said. "I don't know of anyone that would disagree with any of the five points."

Local lenders pointed to the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act as already offering extensive protection for consumers.

Ingraham said the Raines Bill of Rights may be targeted at some of the more fraudulent mortgage vendors rather than the industry as a whole.

"With the recent flipping schemes grabbing headlines across the country, the Bill of Rights may be targeted at a few bad lenders rather than all of us," Ingraham said.

But Barry Zigas, a senior vice president for Fannie Mae, said the "Bill of Rights" was not intended to reform lenders so much as to inform mortgage consumers.

"I think many lenders already do this, and we think that's great," Zigas said. "These rights may not be new to them but they will be news to a large number of mortgage consumers. This is one of the most important decisions a consumer will make."

Right to know

Zigas said Fannie Mae has decided to disclose the loan factors used by the company's Desktop Underwriter System so that all consumers will know what goes into a mortgage lender's decision.

"People have a right to know what the goes into a lender's decision," Zigas said. "There is no reason for us not to share the factors with consumers."

Zigas said this measure should help to boost minority homeownership rates -- which lag almost 30 percent behind those of white Americans -- by informing buyers of what they need to do to be approved for a mortgage loan.

"Minority and low-income buyers have multiple barriers to homeownership, one of which is lack of information and we hope to help them prepare for applying for mortgage loans," Zigas said.

In promoting the "Bill of Rights," Fannie Mae launched the True Cost Calculator, an Internet-based tool that allows consumers to calculate the actual cost of a mortgage and compare to find the best mortgage deal.

By using the calculator, Zigas says, consumers will be able to better understand everything from fees attached to mortgage loans in their area to mortgage insurance and courier fees.

"Greater understanding will ensure that consumers will understand what their mortgage will really cost. There really are wide variations in fees that consumers can expect and they need to be able to make informed decisions," Zigas said.

Steve O'Connor, senior director of residential finance for the Mortgage Bankers Association of America, said only time will tell if the Fannie Mae's Internet calculator really does any good.

"It's novel and innovative, but I think it will be very challenging to accurately calculate the true cost of a mortgage online," O'Connor said. "There are so many specific fees and I think there is a danger in overvaluing this."

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