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 FEB. 15, 2007
Politicians Consider New Laws to Protect Borrowers
Several states and Congress are considering laws that if enacted, would require lenders and mortgage brokers to ensure that a loan is "suitable" for a borrower's needs. This idea is similar to the practice of stockbrokers ensure that an investment is right for a client.


One state has already enacted a law that prohibits lenders from the refinancing of a mortgage that is 30 months old or less, unless the refinancing of the loan provides a "reasonable benefit" for the borrower.

A new law in another state enforces a "duty of fair dealing" on mortgage lenders that are not affiliated with a bank. The law requires that mortgage brokers arrange and secure loans for borrowers that provide them with "advantageous" terms.

These laws also require the lenders ask potential borrowers a series of very detailed questions regarding thing s like their financial goals and their individual tax status. After asking these questions if the loan turns out to be inappropriate or not to the borrowers advantage the lender could be open to a lawsuit or possibly even prison time.

If laws of this nature are passed by Congress, the business models for the mortgage industry would change dramatically because of the litigation risks.

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