New Bill to Protect Consumers

[Carboholic]

Will mortgage broker bonds be considered a higher risk to write if Senate Bill Number S.1299, also known as the "Borrower's Protection Act of 2007", were to pass into law? This bill was introduced to federally regulate mortgage brokers' and loan originators' underwriting standards in order to prevent predatory lending. So I'm wondering if this could have an impact on the Surety Industry and produce an increase in claims on mortgage broker bonds?

[marietta68]

Will mortgage broker bonds be considered a higher risk to write if Senate Bill Number S.1299, also known as the "Borrower's Protection Act of 2007", were to pass into law? This bill was introduced to federally regulate mortgage brokers' and loan originators' underwriting standards in order to prevent predatory lending. So I'm wondering if this could have an impact on the Surety Industry and produce an increase in claims on mortgage broker bonds?

Speaking as an underwriter, I can assure you that the bill, as written, would seriously impact the ability/willingness of the surety industry to write mortgage broker/lender bonds. First of all, there's another side to the story, which is fraudulent borrowing with false appraisals, income, etc., which is a huge problem for the industry. This bill wants to be sure the borrower understands the underlying mortgage agreement which gets into such subjective areas, I don't know how it could be legislated. The bill wants the lender to verify income and assess the likelihood of repayment, but that income verification piece is one of the contributors to mortgage fraud in the first place because of the length of time it can take when people don't have a regular paycheck. Having said all this, the bonds currently used are made in favor of the states issuing the licenses. The federal bill doesn't include language stipulating a new bond requirement, and when it does, it'll be reviewed closely by the Surety Association, which will make recommendations as needed (this bill is brand new and will be subject to much review by both the Senate and the House) to be certain it remains a bondable obligation and not based on adverse selection. Be aware that the tougher they make the law, the tougher it'll be to obtain the bonds and could put a lot of smaller brokers out of business as a result.

[Admin]

Any law that the surety industry feels will result in an increase of claims will result in either one of two reactions (or both):

1. The carriers will have more stringent underwriting practices, resulting in more overall declinations
2. The carriers will increase rates to aid in the financial stain from additional losses.

It will be interesting to see how all of this turns out, as mortgage broker bonds are a good part of the commercial bond industry.