Hey, Mr. Murray - Question re: GA Legislature

[Mrs X]

Mr. Murray, since I know you're in Georgia, could you explain - IN LAYMEN'S TERMS - what's going on right now with manufactured housing lenders in the Georgia legislature? It's something to do with what they call "predatory lending". I've gotten an explanation from a Palm Harbor salesman but I still don't understand. I talked to a mortgage broker yesterday who said that because of this situation, many of the lenders in Georgia were no longer going to finance manufactured housing. Can you explain?

Thanks

[rmurray]

Your salesperson are a little short sighted...This is far more than just the manufactured home business...

The legislature in its wisdom passed a very tough but somewhat unclear Predatory Lending bill...This was to keep us from being stupid and taken advantage of by the big bad mortgage companies....Unfortunately the law leaves some room for the courts to interpet...and the penalties for violation are passed on to the holder of the mortgage (not the originator) and can be very substantial...Many mortgage companies are dropping GA business because of this...They are afraid of future court rulings and liability cropping up years from now..

There are 2 issues right now..
1) the basics of the law it self...eliminates most B and C credit conventional lender right off the bat...These were lenders that would consider credit under 620 scores with some blemishes..Often these lenders have somewhat higher costs involved to help cover the higher risk they take..The law that was intended to help the poor unsuspecting buyer from crooked lenders..is working fine..now they cannot get a loan at all..

2)..2 weeks ago..Standards and Poors...a bond rating firm who rates the investment quality of investment packages that are bought by large investors.. (retirement funds, governement retirement programs, union funds, investment funds and the like)...announced that they would NOT rate any mortgage package that has ANY GA mortgage (even those that are clearly inside of the law) in it because of the potential of risk for the investor from a future adverse court ruling.....This type of mortgage makes up about 45% of the total market for mortgages..In the last 2 weeks scores of mortgage companies have abandoned the GA market..I have been told that it is somewhere around 30% of all companies...

What does all this mean to you...NOW...there are only 3 sources of mortgage loans available in GA..manufactured or site built...Fannie Mae, Freddie Mac and FHA....Fannie and Freddie both require a verifiable downpayment or land equity from seasoned (you own it for over 1 year) land...They might accept a gift...but only from a relative and they have to verify the source..All downpayment funds must come from a bank account and have at least 3 months record in the account...Cash is not good enough..These sources generally require a 620 or better score...
FHA is all that is left otherwise...More regulations, more paperwork...downpayment can come from charitable nonprofit..set up is more expensive and detailed...much longer to completion..As a dealer we have avioded the use of FHA for the last years...Out of about 500 mortgages in the last 3 years...I doubt we did more than 3 FHA...Now we have over 20 FHA in process and expect this to be the future of our finance...The credit rules are a little easier..Credit score is not important...there must be NO 30 day late notices in the last 12 months..they will take nontraditional sources of credit...like phone and electric bills....

Concluesion....if you have good credit (above 620 score) and have 3% verifiable downpayment....or...you qualify for FHA..there is no problem...I would say about 15% of those we sold last year in GA would not be able to buy this year...and...many would have to pay more for set up to meet the FHA standards..Thankfully 1/2 of our business is in SC..

The legislature is working on a fix for the number 2 problem...by making any future liability of adverse court rulings fall on the originator of the loan...not the holder of the loan...but..many with challanged credit will not be able to buy because of the basics of the law..

[Mrs X]

Thanks - I pretty much understand it now. I was surprised that Clark Howard is in favor of the law - he usually has some sense.

I'm very tired of the government trying to save us from ourselves.

Who will save us from the government?

[mike's wife]

How will this law effect anyone looking to re-finance?

[rmurray]

The same as buying...
Good news though...it was announced that the legislature has come to an agrrement to solve the issue number 2 above...but the tight rules will continue...This will mean those will challanged credt will continue to have a hard time to get loans..

[Cheryl in Cali.]

I read this at cheapskate monthly

Saturday, February 01, 2003
Anti-predatory in Georgia
www.Bankrate.com


Mortgage shoppers in Georgia might discover soon that they can’t get a loan or even a rate quote. Blame it on Georgia’s anti-predatory lending law. The Georgia Fair Lending Act, or GFLA, is the farthest-reaching anti-predatory lending law in the nation. It is designed to protect elderly, poor and unsophisticated borrowers from lenders who price-gouge or make loans that can’t be repaid. When the law went into effect Oct. 1, 2002, Georgia’s mortgage lenders and brokers predicted that it would create a credit crunch. No one guessed that a bond-rating agency would make that forecast come true. But that could be the result of Standard & Poor’s announcement last month that it would no longer rate mortgage-backed securities that include loans covered by GFLA. Some mortgages are not governed by the Georgia law: jumbo mortgages (loans in excess of $322,700), reverse mortgages, bridge loans that finance the construction of the borrower’s primary home, agricultural loans and commercial loans. Standard & Poor’s action does not affect those loans.