NAR: Higher lending standards can curb abusive practices

WASHINGTON – May 8, 2007 – The National Association of Realtors® (NAR) is calling on bank regulators to adopt higher lending standards while giving lenders more flexibility in determining whether homebuyers can afford to meet their loan obligations.

In a comment letter submitted to John Dugan, comptroller of the currency, NAR offered a number of suggestions to federal banking regulators and the National Credit Union Administration on their “Proposed Statement on Subprime Mortgage Lending,” published in the March 8 Federal Register.

NAR agrees with many of the comments and principles of the statement, and also offered key features of its own newly adopted “Enhanced Subprime Lending Policy.” The policy offers solutions that could help the U.S. avoid the recent mistakes that led to an increase in foreclosures and the families they affect.

“NAR stood ready during the boom years and continues to be ready during these difficult times to help people who want to buy a home and families trying to keep their home,” says NAR President, Pat V. Combs. “NAR provides Realtors with educational information, including a series of consumer brochures, designed to help homebuyers understand the complexities of buying and financing a home. Over the past few years, we produced a series of educational products in partnership with the Center for Responsible Lending and the Federal Housing Administration. One brochure focused exclusively on the dangers of many of the ‘exotic’ loans being offered.”

NAR supports loan underwriting standards, including verification that the borrower can repay the loan based on all its terms, including higher payments based on interest rate increases, along with taxes and insurance. “We would also like to see subprime lenders reviewing and insisting on a reasonable debt-to-income ratio. Again, this transaction is not just about buying the house and being done with it. It is about ensuring that once a family has a home they have the ability to keep it,” Combs says.

For subprime mortgages, NAR’s enhanced policy recommends that lenders require escrow amounts for taxes and insurance in the monthly payment. However, it also recommends flexibility for “life circumstances” displayed by borrowers, such as those who have demonstrated an ability to make monthly payments over the long term.

Other recommendations from NAR’s enhanced policy include eliminating prepayment penalties for all mortgages, establishing an anti-mortgage-flipping rule and requiring mortgage originators to offer borrowers mortgage choices.

To see NAR’s complete, policy visit: http://www.realtor.org/GAPublic.nsf/files/enhanced_subprime_lending_policy_summary.pdf
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© 2007 FLORIDA ASSOCIATION OF REALTORS®

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