The U.S. House of Representatives approved historic bipartisan legislation to reform mortgage and anti-predatory lending practices late last week. H.R. 3915, the “The Mortgage Reform and Anti-Predatory Lending Act of 2007” seeks to establish a national standard to rein in the abusive lending practices that contributed to the current mortgage crisis.
This comprehensive legislation will create a licensing system for residential mortgage loan originators, establish a minimum standard requiring that borrowers have a reasonable ability to repay a loan, and will attach a limited liability to secondary market securitizers. The legislation will also expand and enhance consumer protections for “high-cost loans,” will include protections for renters of foreclosed homes, and will establish an Office of Housing Counseling through the Department of Housing and Urban Development.
The bill also contains the following provisions:
· Registering Mortgage Originators to Prevent Abuses: Currently, there is no national standard for the licensing of mortgage originators. This has allowed for lax oversight and enforcement of how mortgages are made and sold and in many areas had lead to the potential for abuse. H.R. 3915 will require originators to be part of a national registration system, either through the states or the Department of Housing and Urban Development. This system for licensing and registration will ensure that mortgage originators are registered in a national database (much like securities brokers) and meet minimum education and certification standards.
· Ensuring Responsible Lending: Mortgage originators will be required to provide full disclosures and present consumers with appropriate mortgages. This means that the originator will have to ensure that a consumer who receives a mortgage loan: 1) has a reasonable ability to repay the loan; and 2) will receive a net tangible benefit from the loan in the case of a refinancing.
· Preventing Abusive and Discriminatory Lending: Statistics have shown that many homeowners in the current mortgage crisis received more expensive loans than they qualified for. This is often the result of a predatory practice known as “steering.” H.R. 3915 will prohibit the undisclosed and unfair compensation schemes that disadvantage borrowers, and require regulations to prevent steering for subprime loans. Mortgage originators who engage in predatory practices and loan steering will be subject to strict penalties.
· Holding Wall Street Accountable: Because mortgage companies can sell loans on the secondary market, they are often bought by large Wall Street firms and turned into securities for investors. This bill contains unprecedented federal consumer protections that will subject Wall Street firms to liability if they buy, sell and securitize loans that consumers cannot repay. They will be held accountable by consumers and will have the ability for loans to be rewritten and reworked.
· Establishing a National Standard for Liability: The current patchwork of state laws across the country has led to a lack of clear accountability in the lending process. H.R. 3915 will establish a national standard regarding assignee and securitizer liability, requiring that the borrowers have a reasonable ability to repay and ensuring that there will be a net tangible benefit to the borrower. Wall Street firms will finally be held accountable at the federal level for their actions in the mortgage market, while States remain free to pass more stringent laws against lenders and originators.
· Protecting Tenants: Renters can also be affected if the homes that they rent go into foreclosure. This legislation will provide protections for renters so that they receive proper notification and are given time to relocate before the home they rent is foreclosed.
· Providing Consumer Protections for High Cost Loans: Provides Consumer Protections for High Cost Loans: H.R. 3915 expands the scope of and enhances consumer protections for “high-cost loans” under the Home Owners Equity Protection Act by lowering points and fees and interest rate triggers prohibiting practices that increase the risk of foreclosure such as balloon payments, encouraging a borrower to default; and requiring more pre-loan counseling.
