NEVADA PASSES AB 440 REQUIRING LENDERS TO VERIFY A BORROWER'S ABILITY TO REPAY A LOAN
In an effort to protect consumers from unscrupulous brokers and as a knee jerk reaction to the current subprime turmoil, Nevada passed Assembly Bill 440. Effective October 1st, 2007, AB 440 amends NRS 598D.100, in part, to make it an unfair lending practice for a lender to: “knowingly or intentionally make a home loan, other than a reverse mortgage, to a borrower, including, without limitation, a low-document home loan, no-document home loan or stated-document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.”
To read the new bill in its entirety click here: Nevada AB 440
http://www.leg.state.nv.us/74th/Bills/AB/AB440_EN.pdf
The issue with the Nevada bill is that it is unclear to what extent a licensee must investigate a borrowers stated income declarations and many licensees have expressed concern over the meaning of "commercially reasonable means or mechanisms" in the context of determing that the borrower has the ability to repay the loan.
NEVADA MORTGAGE LENDING DIVISION TRIES TO CLARIFY AMBIGUITY
In an effort to clarify the ambiguity the Comissioner of the Mortgage Lending Division issued a statement to lenders. Among other things, the Division says that "licensees must verify the information that borrowers provide. The Division recognizes that there are some general sources, such as Salary.com and the Department of Labor, which may be utitlized to verify income in those situations where verfication of employment, pay stubs or tax returns are not utilized." The Division also stated that, "it is also important that licensees document for examination purposes that these discussions and verifications occurred. One suggested method fo rdoing so would be the completion of a worksheet for each home loan." The Division provided a sample worksheet. Click here for a copy of the worksheet.
http://www.mld.nv.gov/Documents/2007-09-14-MLD-ExhibitA.pdf
Click here to Read the Commissioner's Letter in full.
http://www.mld.nv.gov/Documents/2007-09-14-MLD-LtrNo2007-2AB440.pdf
NEVADA HOUSING MARKET WILL LIKELY SUFFER FURTHER PRESSURE AS A RESULT OF FURTHER LIQUIDITY ERROSION
The letter and the worksheet did little to provide lenders with confidence to continue lending to stated income borrowers in the state. In fact, several major lenders made statements that they will discontinue making stated income loans until the legislation is repealed including Wells Fargo and TB&W. It does not take a Harvard economist to predict what affect this will have on the Nevada housing market, already having one of the highest foreclosure rates in the nation. '
See also article written by NARREIA Staff
http://www.narreia.com/newsadvice/news_detail.php?blog_id=956
HELVETICA TEMPORARILY CEASES FUNDING STATED INCOME RESIDENTIAL LOANS
It appears that Nevada is putting an unreasonable burden on lenders requiring them to investigage borrower and broker fraud. The irony is that the Lender who fails to identify the fraud, may be sued by the same perpetrator pursuant to AB 440 and prosecuted for that same fraud. Until Nevada repeals or amends the new law to allow for more predictability in its interpretation, Helvetica and its affiliates have joined those others lenders that have decided to cease making stated income residential loans to borrowers in Nevada. Let's hope that other states do not follow suit, else stated income borrowers will be left without a source for a loan.
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