Pending Legislation May Make Loans More Expensive (NAPSA)—If yow’re planning on—or just dreaming about—buying a house, it may pay to hurry up. Although interest rates are currently low, in the not-too-distant future the costs of financing a home may be so high many consumers simply will not be able to afford it. That could happen if a piece of legislation before the U.S. Senate comes to fruition, warn people familiar with the situation. The financial reform bill “Restoring American Financial Stability Act” includes something called a “risk-retention” provision. This would require all lenders to hold at least 10 percent of the “credit risk” for each loan they originate and ultimately sell off to investors. The idea is that this will prompt lenders to be more diligent in qualifying clients, as it forces them to have exposure to risk in the loans they write. It’s also believed to mean lenders will have to have 10 percent of cash on hand for each and every loan they write. “While I am sure our elected officials have good intentions, the unintended consequences of this legislation would be staggering,” said Scott Stern, chairman of the Community Mortgage Lenders of America, a national group dedicated to increasing competition and consumerchoice in the mortgage industry. “In reality, what will happen is a mass closing of small community and regional lenders, who will simply not be able to carry the amount of cash required by the legislation. This is significant, as local lenders write nearly 40 percent of all mortgages.” Congress is currently weighing legislation that could dramati- cally impact the cost and avail- ability of mortgages. Consider this: If a small community lender writes $100 million in loans, after only five years it will be asked to hold as much as $50 million in cash reserves— impossible for most lenders. Lenders warn the net result could be a smaller pool of lenders, with those who remain forced to charge significantly higher rates to cover the cost of risk retention. “T have to wonderif the government is familiar with the lending process. Lenders already retain the risk on the loans they write. If they do not meet the investors’ guidelines, the lender must buy that loan back,” Stern said. Manylenders, and consumers, are watching this one very closely. You can write your legislators to let them know that you oppose risk retention and limited choice at www.house.gov and www.senate. gov.
