Oregon Mortgage Lending Protocol to Undergo Sweeping Reform

The Oregon Department of Consumer and Business Services (DBCS) announced this week that it will be making changes to its regulations of the home mortgage lending industry.

The state agency said the changes - which include adopting new rules and guidelines and increasing education and enforcement efforts of existing Oregon mortgage regulations - are a response to repeated consumer and industry concerns.

The new rules, effective Thursday, will implement more stringent requirements for mortgage professionals and ensure that every mortgage broker and/or lender will effectively supervise its loan originators.

The Division of Finance and Corporate Securities also is addressing the increasing number of non-traditional mortgages (often called bad credit home loans) offered to Oregon residents by adopting guidelines for state-regulated lenders.

The guidelines are based on federal guidelines for national banks and other financial institutions, and outline best practices related to two types of non-traditional loans: “payment option” and “interest-only mortgage” ARMs.

With these types of home loans, borrowers exchange lower payments under a low initial interest rate period for higher payments down the line. In an interest-only mortgage, a borrower only pays interest at first, but later must pay interest and principal each month.

The payment could increase substantially - even doubling in some cases.

“[Bad credit loans] appeal to the consumers who may not qualify for a conventional mortgage, and these borrowers often do not understand the risks they may face,” David Tatman, administrator for the division, said in a statement.

“These guidelines will protect those borrowers by directing the mortgage lender to clearly explain the implications of the loans and evaluate the borrower’s ability to make monthly payments even when the loan rates are adjusted after a few years.”