And without the ability to sell the loans on the open market the banks are forced to keep the loans on the books and ensure payment. This will bring back the days of 20% down and spotless credit required to negotiate a loan.
And without the ability to sell the loans on the open market the banks are forced to keep the loans on the books and ensure payment. This will bring back the days of 20% down and spotless credit required to negotiate a loan.
where's Ditech when you need them? 
I'm a loan officer in Utah, and we have very strict preditory lending laws here as well. I have no problem with protecting the consumer from loan practices that are harmful to the consumer and / or the lender. Unfortnately, the only ones who win in these battles are lawyers, and Georgia lawyers will have a hayday with this one. I think some of those Georgia "good 'ol boy" lawyers should be taken to the woodshed sometimes. But instead, Georgia makes them mayors, judges, senators and governors. Go figure.
I'm a loan officer in Utah, and we have very strict preditory lending laws here as well. I have no problem with protecting the consumer from loan practices that are harmful to the consumer and / or the lender. Unfortnately, the only ones who win in these battles are lawyers, and Georgia lawyers will have a hayday with this one. I think some of those Georgia "good 'ol boy" lawyers should be taken to the woodshed sometimes. But instead, Georgia makes them mayors, judges, senators and governors. Go figure.
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Mostly due to the cost of the legal proceedings, but also because of the necessity to recover lost interest. By the time a lender finally gets the house, the borrower usually hasn't made a payment in at least 12-18 months. On an average loan, that's well over $10 thousand in interest alone that has to be recovered. Then the legal proceedings usually cost another $10k+ and then there's the fact that most foreclosed borrowers usually strip and wreck the home before they are finally evicted (I helped my sister buy a foreclosure-pending home 3 years ago... after they got the home and had the police evict the former owner, they had to haul out over 3 tons of garbage and spend more than $10k fixing up the home... thankfully they got a good deal on the price, but the former owners' lender, Ameriquest, had to write off more than $30k... those foreclosed borrowers, btw, were the predators, IMO... they refi'ed with Ameriquest for large cash-out, pocketed the money and never made one payment, not one, for more than 18 months before Ameriquest was finally successful in foreclosing).
We have a winner!! This is exactly where we are headed, back to the bad old days of 20% down, spotless credit, and 15% interest. Of course, that means that home values will also take a total sh!t too.
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Very well stated.Originally posted by: Tripleshot
where's Ditech when you need them?
I'm a loan officer in Utah, and we have very strict preditory lending laws here as well. I have no problem with protecting the consumer from loan practices that are harmful to the consumer and / or the lender. Unfortnately, the only ones who win in these battles are lawyers, and Georgia lawyers will have a hayday with this one. I think some of those Georgia "good 'ol boy" lawyers should be taken to the woodshed sometimes. But instead, Georgia makes them mayors, judges, senators and governors. Go figure.
"Remove the part where the investors can be sued as well the originating lender/broker."
If the investors are profiting from a particular deal please explain why they don't have liability if it turns out the deal is actionable ?
I thought it was an accepted principal that anyone who gains from an improper act is liable ?
( I hope that's the right word, what I mean is the deal leads to a lawsuit based on a violation of the law in question)
Couldn't this be solved by requiring the holders of large bundles of these mortgages to have insurance against these kind of problems ?
If the investors are profiting from a particular deal please explain why they don't have liability if it turns out the deal is actionable ?
I thought it was an accepted principal that anyone who gains from an improper act is liable ?
( I hope that's the right word, what I mean is the deal leads to a lawsuit based on a violation of the law in question)
Couldn't this be solved by requiring the holders of large bundles of these mortgages to have insurance against these kind of problems ?
Originally posted by: Fausto1
Vic, I'm curious: how would you amend this law in order to circumvent this problem while still protecting GA's citizens from predatory lenders?
Serious question. I'm not being a wiseass (for once
Allow the lenders, but not the secondary investors, to be liable for predatory lending.
Making the secondary investors liable is ridiculous. And probably illegal. It's like making Microsoft shareholders responsible for the antitrust actions of the company.
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Why would you want that? The cost of that insurance would have to be shifted onto the consumers.
The problem here is that, despite popular belief, a "predatory" loan is not necessarily defined by interest rate or fees, which is all that the investors offer. A predatory loan is one in which the customer does not benefit from having done the loan, in which their financial situation is made worse because of the loan. And the fault for that type of action lies solely on the retail originator. The reality is that even an "A" paper loan with the lowest rate and lowest cost could be a "predatory" loan for some people (for example, refinancing someone with a 15 year loan into a 30 year, or taking someone from a fixed to an ARM).
The other issue is that some people trying to define "predatory" as a loan done in a high-rate market environment, as Corn pointed out. For example, someone takes a loan out in a high rate market and then rates drop later. Forget the fact that mortgage interest rates are virtually impossible to predict, lawyers (for whom hindsight is always 20/20) say that is "predatory" lending.
Look, I'm all for protecting the consumer. You'd think that by now I would have a reputation on this board as a consumer advocate. The issue here is that the consumer is already very well protected. Anyone here remember the last time they took out a mortgage loan? How many hundreds of papers did you sign? How often did you see the rate, fees, and APR? Getting a mortgage loan is like going to buy a car and being allowed to see the invoice and offer of every dealer in town and then being given 4-8 weeks to decide which dealer is best. My concern is that these anti-predatory lending laws, like this new one in Georgia, are going too far, making it so a lender can no longer afford the liability of doing loans at all, and that hurts all homeowners (edit: because your home values are dependent on the availability of financing). Even the smart 99.9% of them who remember to read their documents before they sign.
Well, it's just going to confuse an already confusing issue to bring up Enron, but in a way that illustrates my point.
The shareholders in Enron profited from the shenanigans of the management, in terms of the inflated stock price, and when the shenanigans were undone they also shared in the losses.
A simpler illustration, if I steal a tv and give it to my Mom, and then I get caught, my Mom doesn't get to keep the tv. If my Mom knew it was stolen, or should have known she will be in trouble too.
Changing the Georgia law so that the investors aren't liable seems to be saying my Mom not only doesn't get in trouble, but she can keep the tv too.
The shareholders in Enron profited from the shenanigans of the management, in terms of the inflated stock price, and when the shenanigans were undone they also shared in the losses.
A simpler illustration, if I steal a tv and give it to my Mom, and then I get caught, my Mom doesn't get to keep the tv. If my Mom knew it was stolen, or should have known she will be in trouble too.
Changing the Georgia law so that the investors aren't liable seems to be saying my Mom not only doesn't get in trouble, but she can keep the tv too.
You're wrong.
Should Enron shareholders be responsible for the illegal dealings of the board? Should creditors be able to sue the shareholders for damanges... and then add punitive damages on top of that?
It's the same thing.
"It's like making Microsoft shareholders responsible for the antitrust actions of the company. "
um, they would be, in terms of monetary loss.
um, they would be, in terms of monetary loss.
Corn
Diamond Member
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Mostly reason #2. Our investors require a certain profit margin be maintained. It's the same profit margin across all of our product lines. We charge a higher rate on "non-conforming" product than the conventional product simply because our losses are higher with those products.
There is not a legit lender in the business who aims to foreclose on properties. Every time a borrower doesn't pay we lose a stastical 20% of the amount we originally lent. Mostly because fraud is a major contributing factor to the reason the property was forclosed in the first place (usually over inflated home values and/or bogus income documentation). Half the time the properties we end up foreclosing on are not even in habitable condition.
No, they didn't share the losses.
Their losses were limited to their initial investment. This law is equivalent to making the shareholders have to repay all of Enron's creditors from their own pockets, above and beyond the prices they paid for Enron stock.
Which is illegal. As it should be.
No, they're not. The shareholders are not responsible for paying the corporate obligations. If the corporate obligations exceed the corporate assets, creditors cannot attach the shareholders' personal assets. They lose the value of their investment, but no more.
The Georgia law would allow creditors to sue the lenders and the investors not only for the value of the investment, but for punitive damages as well. That's shifting the responsibility and the liability to those who did not make the decisions, and is quite probably illegal.
Yes, investors stand and should stand to lose the total value of their investments. But their liability has always been limited to the value of the investment and not more. By adding punitive damages on top of this, the investor's risk is suddenly much, much more than the value of his investment. No investor is going to buy a $100 investment if he stands to loose $1000 or $1,000,000.
"Should Enron shareholders be responsible for the illegal dealings of the board?"
To the extent they invested their money they are automatically held responsible when the share price dropped.
"Should creditors be able to sue the shareholders for damanges"
In effect they are able too, depending on what kind of creditor you mean.
"and then add punitive damages on top of that?"
In the case of Enron shareholders, I don't see how, and I'm not saying they should be.
If we are talking about hypothetical investors who put their money in high interest rate mortgage vehicles, interest rates so high that they should realize something is fishy, then perhaps.
And I'm not arguing the particulars of the Georgia law, I don't know enough about it. I just thought the concept that investors should be allowed to profit from loans which are determined to be illegal without any liability, seemed a little weird.
To the extent they invested their money they are automatically held responsible when the share price dropped.
"Should creditors be able to sue the shareholders for damanges"
In effect they are able too, depending on what kind of creditor you mean.
"and then add punitive damages on top of that?"
In the case of Enron shareholders, I don't see how, and I'm not saying they should be.
If we are talking about hypothetical investors who put their money in high interest rate mortgage vehicles, interest rates so high that they should realize something is fishy, then perhaps.
And I'm not arguing the particulars of the Georgia law, I don't know enough about it. I just thought the concept that investors should be allowed to profit from loans which are determined to be illegal without any liability, seemed a little weird.
"The Georgia law would allow creditors to sue the lenders and the investors not only for the value of the investment, but for punitive damages as well. That's shifting the responsibility and the liability to those who did not make the decisions, and is quite probably illegal."
My post was in response to the following solution to fix the Georgia law..
"Remove the part where the investors can be sued as well the originating lender/broker."
I would understand this to mean that the investors could not be sued, period. You are saying they could be sued for the value of their investment even if this "fix" were implemented ? If so, please explain, if not, then I don't think we have a disagreement necessarily.
My post was in response to the following solution to fix the Georgia law..
"Remove the part where the investors can be sued as well the originating lender/broker."
I would understand this to mean that the investors could not be sued, period. You are saying they could be sued for the value of their investment even if this "fix" were implemented ? If so, please explain, if not, then I don't think we have a disagreement necessarily.
No, the shareholders are not responsible. Shareholders can't be sued or put in jail for the illegal actions of the company they own. The loss of money is not the same as legal responsibility for the dealings of the company.
No, they can't. Shareholders' risk is limited to their investment. Creditors cannot go after investors' personal assets. Enron investors can't be forced to pay for the illegal dealings of the company. The limitation of liability is central to the whole concept of incorporation.
What makes you think that investors would know the terms of the loans they're buying? These loans are bundled up and sold as huge packages. The Enron investors didn't know about management's shenanigans. The same thing will apply to unscrupulous lenders selling mortgages. There's no way for the investor to know. Just like Enron.
The investors, in all liklihood, won't know the loans they're buying were made illegally. Those who made the loans should be held liable, not those who buy the loans.
The Enron case really is a good parallel here.
KK
Lifer
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huh? I think when whoever said, "Remove the part where the investors can be sued as well the originating lender/broker.", they were meaning exactly what they said. If the mortgage fund tanks investor are out the cost of their invest and thats it. Even making this law like this would suck for the investors, therefore S&P would not rate them, making them unsellable. That's like taking an investment on a doctors wealth that has no insurance. It's just nuts. Why would anyone want to buy GA mortgages? Personally I'd look elsewhere.
KK
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Look, predatory lending is a sales practice, not a product.
The VERY few lenders who do this are the dregs of the industry. In addition to a coerced and mislead customer, predatory loans usually involve forged documentation, a lack of compliance with existing lending laws, and inflated appraisals. These are not loans that investors would buy if they knew them for what they were. In most cases, the investor is just as much a victim as the customer, with the dishonest originating broker or lender being the only winner.
Now along comes Georgia and says that the investor is the one at fault. Ridiculous.
The VERY few lenders who do this are the dregs of the industry. In addition to a coerced and mislead customer, predatory loans usually involve forged documentation, a lack of compliance with existing lending laws, and inflated appraisals. These are not loans that investors would buy if they knew them for what they were. In most cases, the investor is just as much a victim as the customer, with the dishonest originating broker or lender being the only winner.
Now along comes Georgia and says that the investor is the one at fault. Ridiculous.
"Corn, out of curiosity, do lenders charge higher interest rates to people with bad credit more to disuade the people from taking the loan, or more to help build up a cusion of the person defaults on the loan if they do take it out? Or just a healthy combination of the two? "
They charge as high an interest as they can to everyone. Someone with bad credit has fewer options, less supply, so has to pay a higher rate.
They charge as high an interest as they can to everyone. Someone with bad credit has fewer options, less supply, so has to pay a higher rate.
It may be VERY few in other parts of the Country but not good ol Georgia. Hundreds of homes of the elderly were literally taken from them near Atlanta. Then the Lenders bulldozed the forclosed homes and sold the land for HUGE profits to build the new 500,000 Condos now in place of the original homes. This was the Georgia Lenders idea of improving the Real Estate Landscape.
The Industry brought thhis upon themselves. :| It will get "fixed" but not on their terms, they already blew it once. They had years and a lot of chance to stop the practice within their own but they failed to act, that is why the Legislature stepped in and did what they felt they had to do.
If you lived here in Atlanta you would've seen all the people that lost their homes by these "dregs".
Quote
--------------------------------------------------------------------------------
Originally posted by: Dead Parrot Sketch
"Should Enron shareholders be responsible for the illegal dealings of the board?"
To the extent they invested their money they are automatically held responsible when the share price dropped.
--------------------------------------------------------------------------------
No, the shareholders are not responsible. Shareholders can't be sued or put in jail for the illegal actions of the company they own. The loss of money is not the same as legal responsibility for the dealings of the company
_________________________________________________
What do you mean, no ? Did you read what I said ? Did I say they could be put in jail or sued ? Did I say they were legally responsible for the actions of the company ?
I could go back and requote virtually everything I said and everything you said in reply, but the thread will get way too out of hand. Somehow when I read your responses it seems like you are arguing points with me that I didn't make.
--------------------------------------------------------------------------------
Originally posted by: Dead Parrot Sketch
"Should Enron shareholders be responsible for the illegal dealings of the board?"
To the extent they invested their money they are automatically held responsible when the share price dropped.
--------------------------------------------------------------------------------
No, the shareholders are not responsible. Shareholders can't be sued or put in jail for the illegal actions of the company they own. The loss of money is not the same as legal responsibility for the dealings of the company
_________________________________________________
What do you mean, no ? Did you read what I said ? Did I say they could be put in jail or sued ? Did I say they were legally responsible for the actions of the company ?
I could go back and requote virtually everything I said and everything you said in reply, but the thread will get way too out of hand. Somehow when I read your responses it seems like you are arguing points with me that I didn't make.
Regardless of the intentions of the law, or the legality or morality of the clauses the end result of the law the way it is drafted is GA has simply made all GA loans unsaleable on the open market due to the liability concerns. This action has removed competition in the lending pool dollars and as a result banks will be solely shouldered with providing the loans in GA. Without competition the Banks will reinstitute the mortgage policies of the 50's requiring 20% down, spotless credit, approval from the loan manager on your character and uber interest rates. Without the ability for the majority of GA's to get quality loans the housing market will crash and housing prices will plummet because existing owners will not be able to sell their homes. As a result of people being unable to buy homes rental prices will sky rocket for a while until a supply/demand balance is equalized between home sales and home rentals.
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