New Predator Lender Law

I heard “no-doc” loans are now illegal in Nevada … is that true?

Effective October 1, 2007, Nevada amended its unfair lending practices and mortgage fraud provisions. The changes regarding low, or no document, home loans are vague resulting in temporary confusion in the loan industry. The language is seemingly simple,”…it is 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.” It did cause some to incorrectly think no-doc loans were a thing of the past.

The intent of the law was to disallow approving loans based solely on equity, what is known as hard money loans. According to the primary sponsor of the bill, Markus Conklin, Vegas, it was intended for consumer protection, not to “slow up the process for qualified people” attempting to purchase homes. Discussions between credible lenders and the State resulted in an understanding that such loans can be made as long as "any commercially reasonable means or mechanism" was used to determine that the borrower has the ability to repay the loan. Such means or mechanisms would include, without limitation, credit scores, salary.com (an online service that reports appropriate compensation for jobs), a detailed discussion between the lender and the borrower about the repayment of the loan, etc.

Reputable lenders have always used reasonable means and mechanisms to determine a borrower’s ability to repay a loan. They have done so for the protection of their investors as well as that of the borrower. A good lender cares about you, truly cares, and isn’t just looking to fund a loan to get a commission. They will question you about your investment objectives, your cash flow, potential repayment sources, and determine a loan program that will work well for you and your situation.

Our Advice: The new law protects the unwitting consumer from predatory lenders, and won’t have much of an impact on the business practices of good lenders. No document loans have their place in the market and are a viable option for certain acquisition circumstances you might find yourself facing. Take the time to discuss your repayment options with your lender so you know how the loan will ultimately affect you and your investment. Pay attention – ultimately the decision is yours and you should understand what your options are and the effect your final decision has on you. This is true with any borrowing situation you are considering.

Don’t experiment with lenders. A good lender is a vital component in your real estate program and we are fortunate to have several in the Carson Valley to serve you.

Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, www.carsonvalleyland.com, 775-781-5472.