Thursday, August 02, 2012

Mortgages - Are banks at risk?

Original source from Business Daily - Click the link below

A marriage certificate is now a critical document for anyone applying for a mortgage loan thanks to new land laws that require the involvement of spouses in property acquisition.
What happens to spouses (traditional marriages, etc) who do not Marriage Certificates?
And for the prospective home buyers still in the singles’ club, a sworn declaration of their status would be required as new legislation - intended to protect the interests of the borrowers’ spouse, takes effect.
What if the borrower lies to the Bank/Lender that s/he is single?
The demand that the spouse is involved in the acquisition of property financed by a lender, as envisaged in the Lands Act, is aimed at ensuring that the immediate family is aware of any loans sought to either acquire matrimonial property or where the property has been given as security for a loan.
The immediate family - what's the definition? Do they just have to informed or do they have to OK the transaction?
Doesn't this lock out a spouse who is moving out of the matrimonial home due to a divorce, separation or other event?
A much bigger concern for borrowers who had kept their spouses in the dark over such loans, is that the new laws will apply to existing and new mortgages, meaning less obscurity about financial dealings in the family setting.
What happens to an EXISTING loan/mortgage? What if as a strategic move, the spouse of the Borrower objects? Do banks have to write off these loans?
So far, mortgage lenders have said that thousands of home loan borrowers will be required to re-draft their loan agreements to comply with the regulations which make a spouse’s consent critical in accessing credit. “All mortgage charges will be re-drafted to ensure that spouses assent to the borrowing,” said Frank Ireri, the managing director at mortgage lender Housing Finance.
The Loan Agreements may be re-drafted but what if the spouse (or spouses) object? In essence, it means the Lender is out the money.
Mr Ireri explained that the laws were aimed at protecting the borrowers, where lenders have had a free hand in dealing with the mortgaged property with little regard to the interests of the borrowers and the immediate dependents.
This is a huge step forward for consumers.
It is the reality of losses presented by the new regulation that will prompt the lender to draw up new mortgage charges on all home loans...
What happens if the Borrowers refuse to play ball?
Banks are also required to involve tenants and all interested parties, including spouses and guarantors, before disposing of any property to recover outstanding loan amounts where property has been used as security.
Wow! Involving Tenants means the banks will be forced to hold off on the sale for ages! What if a tenant refuses to assent to the sale or a reduction in the rental rate? Can they blackmail the bank?