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NV Stated Loans Banned

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NV Stated Loans Banned

Trade groups working on resolution

September 21, 2007


photo of Patrick Crowley
A law intended to improve Nevada’s mortgage lending industry has instead caused widespread confusion and could cost borrowers, brokers and lenders loans. But mortgage groups are working feverishly with state officials — including lawmakers, the attorney general’s office and mortgage regulators — in trying to come up with a solution to the confusion over the language in the law.

“It’s a mess, there’s mass confusion,” Sophie Lapointe, president-elect of the Nevada Association of Mortgage Professionals, told “Some of the big lenders have stopped making loans until this gets cleared up.”

Like many states dealing with mortgage fraud problems, the Nevada legislature passed a law, known as AB440, that goes into effect Oct. 1 and sets up new industry regulations and standards. A provision of the law deals with so-called “stated loans” and is meant to ensure that the borrower can repay the loan.

Stated loans have been criticized because borrowers sometimes inflate their income to get a better interest rate or borrow more money than they might be qualified to receive.

But because so many people in Nevada work for tips in the hospitality industry, stated loans are popular and make up as much as 25 percent of home loans in the state, Lapointe said.

“They rely on these loans … so we’ve got to work something out,” she said, adding as many as 100,000 people belong to the state’s culinary and hospitality unions.

The state attorney general’s office and a legislative committee are working on fixes that will hopefully keep open the pipeline of mortgage loans to stated income borrowers, Lapointe said.

Nevada Mortgage Lending Division Joe Waltuch tried to clarify the new law and calm the situation with letters he released earlier this week. Officials have said the lenders are overreacting to language inserted in the bill at the last minute by the behest of representatives of the banking industry.

“The (state) has become aware that there exists some confusion amongst licensees” regarding the law, Waltuch said in the letters. “AB440 does not prohibit specific mortgage products or types of documentation that may be utilized in the making or underwriting of home loans.

“Instead, “Waltuch said,”AB440 recognizes and specifically defines ‘low-document’, ‘stated-document’ and ‘no-document’ home loans. “

“What all of these definitions have in common is that they specifically pertain to the borrower establishing his or her ability to repay a home loan,” he noted. “These definitions do not address the lender’s obligation to verify the accuracy of the information of the borrower has submitted or otherwise determine the borrower’s ability to pay.”

Waltuch’s main advice is to rely on methods that “are reasonable and frequently used within the lending community.”

Lapointe is hopeful regulators, the attorney general’s office and the legislature can come up with definitions and interpretations of the law that satisfy the lenders.

“If not, a lot of people aren’t going to be able to get loans,” she said.

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