A group of mortgage lenders, nonprofit foundations and advocacy groups will certify mortgage lenders as "fair and safe" in their dealings with consumers when they agree to follow the group’s standards, which limit or prohibit many types of loans popular during the housing boom.

The Fair Mortgage Collaborative officially launches today with backing from high-profile groups like the Ford Foundation and the National Council of La Raza. The group’s mission: to offer low- and moderate-income and minority homeowners an alternative to predatory lenders by providing "mortgages with the consumers’ best interests at heart, at a fair rate of compensation."

So far, there are no household names among the Fair Mortgage Collaborative’s participating lending organizations, which include the Boeing Employees Credit Union, the Federation of Community Development Credit Unions, the Federation of Appalachian Housing Enterprises Inc., Mortgage Grader and Clearinghouse Community Development Financial Institution.

The group also counts loan counseling and lending networks (including NeighborWorks America) and secondary market intermediaries (such as Neighborhood Housing Services of America) as members.

Collectively, lenders certified by the Fair Mortgage Collaborative offer mortgages in most of the nation’s most populous states, including California, Florida, New York, Texas, Arizona, New Mexico, Illinois, Minnesota, Washington, Oregon, Pennsylvania, Kansas, Missouri, Arkansas, Maine, Maryland, Vermont, Connecticut, Kentucky, West Virginia and Tennessee.

The Fair Mortgage Collaborative’s standards — first adopted in August — prohibit members from originating or marketing "no doc" and stated-income loans, negatively amortizing loans other than reverse mortgages, and loans with prepayment penalties other than FHA loans or those funded by public agencies. Also banned are first-mortgage loans with balloon payments of less than 10 years, and credit insurance offered by institutions affiliated with the loan broker or lender. …CONTINUED

The group will allow members to offer "nonstandard" loans, but only in cases where they can prove that they are in the best interest of consumers. Nonstandard loans include subprime and alt-A loans, loans in which brokers earn yield-spread premiums, adjustable-rate mortgage (ARM) loans with low initial interest rates, loans requiring monthly payments that exceed 35 percent of a buyer’s monthly income, and interest-only loans that stay interest-only longer than five years.

To verify compliance, certified lending organizations will initially be required to provide an annual report to the group listing each mortgage loan originated, including the loan amount, the borrower’s income and race, the ZIP code of the property, the loan number or other unique identifier, and an indication of whether the loan was a "standard loan" or a "nonstandard loan" as defined by collaborative.

Based on these reports, the collaborative will review copies of complete loan files for a random sample of all mortgage loans originated by certified members each year. In the future, certified members will be asked to submit data on individual loans electronically, as part of ongoing checks to verify members are meeting the Fair Mortgage Collaborative’s standards.

Certified lenders can display the Fair Mortgage Collaborative trademark and describe themselves as "Fair Mortgage Certified" in print or online publications. Certified lenders are listed on the group’s Web site with contact information and a description of the services and products they offer consumers.


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