Tuesday, October 07, 2003
Copyright © Las Vegas Review-Journal

Agency to continue rating of securities

New state law geared to shield some consumers

Fitch Ratings of New York will continue to rate residential mortgage-backed securities containing home loans originating in Nevada despite a new law that took effect Wednesday, the company said Monday.

However, some of those transactions may be subject to additional credit requirements, said Michael Nelson, an analyst for Fitch.

Assembly Bill 284, signed by Gov. Guinn on June 10, prohibits unfair lending practices for home loans and revises provisions governing the sale of real property.

As with all "high-cost" designated mortgage loans, Fitch calculates frequency and severity increases related to these loans and adjusts credit requirements accordingly, Nelson said.

The new law amends Title 52 of the Nevada Revised Statutes, which covers trade regulations and practices.

It defines a number of unfair lending practices related to home loans, including insurance, financing of fees and lending without ascertaining a borrower's ability to repay the loan.

"Basically it's to protect the consumers who supposedly can't protect themselves," said Jed Wunderli, a broker for USA Home Loans in Las Vegas. "It prohibits loan officers from dealing with certain sectors of society and charging exorbitant fees."

For example, he said he's heard of Hispanic loan officers who work exclusively with the Hispanic community, gaining customer trust because they speak their language, then charging them the maximum allowable points on their loans in addition to origination and administrative fees.

Part of the bill requires disclosing changes in fees and rates within a certain tolerance at the time of closing, Wunderli said.

Assemblywoman Barbara Buckley, D-Las Vegas, who introduced the bill in March, said she was concerned about the increase in predatory lending practices throughout the nation and particularly in Las Vegas, where home sales and refinancing have flourished.

The practice takes its most "egregious form" when lending is based on the increased value of someone's home without looking at their ability to repay, Buckley said.

"A little old lady owns her house outright but she's on a fixed income of $800 a month from Social Security," she said.

"Someone calls and says, `OK, you can reconsolidate other bills,' and she ends up with a payment of $600 a month. They don't tell her about the hidden costs and fees packed into it. The fees can be $20,000."

Fitch had previously suggested that it would not rate residential mortgage-backed security transactions, which are home loans rolled into multibillion-dollar packages for institutional-grade investment, originating in jurisdictions with legislation that could result in unlimited liability for predatory lending practices.

Nelson said applicable transaction documents should contain representations and warranties that all mortgage loans are originated in compliance with state, local and federal laws.

A lender who willfully engages in an unfair lending practice described in NRS Title 52 is guilty of a misdemeanor, Buckley said.

If a borrower is successful in bringing an action against a lender engaged in any unfair lending practice, the lender is liable to the borrower for three times the amount of any actual damages sustained by the borrower, along with reasonable court costs and attorney's fees.