House Democrats on Monday introduced legislation that would require all mortgage loan originators to be licensed, and would create new restrictions on their activities — including prohibitions on steering borrowers into loans that are “not in the consumer’s interest.”
The product of months of hearings, “The Mortgage Reform and Anti-Predatory Lending Act of 2007” would create new minimum standards for all mortgages — including a requirement that lenders make good-faith determinations of a borrower’s ability to repay.
Lenders would also be prohibited from making refinance loans that don’t provide “a net tangible benefit to the consumer,” the bill’s sponsors said in a summary of the legislation.
In addition, the bill would create liability for some investors who purchase loans that don’t meet the minimum standards, and also the companies that securitize them for sale to investors.
The lending industry has opposed giving borrowers who claim to be victims of predatory or deceptive lending practices the right to sue investors who buy mortgage-backed securities (MBS). Creating assignee liability would stop the flow of investment capital into mortgage lending, adding to the current credit crunch that’s made it harder for some borrowers to fund a home purchase, critics say.
The bill introduced today by Rep. Barney Frank, D-Mass., and Democratic North Carolina Reps. Brad Miller and Mel Watt would stop short of creating full assignee liability. Consumers would be able to bring only individual, rather than class-action, lawsuits, and pools of securitized loans and investors in such pools would be exempt.
Securitizers and assignees would be off the hook if they remedied provisions of loans that didn’t meet the minimum standards within 90 days of receiving notice from the borrower, or if they had a policy against buying such loans.
Other provisions of the bill include expanded consumer protections for high-cost loans under the Home Ownership and Equity Protection Act, and a requirement that new owners of foreclosed properties honor preexisting leases.
The proposed legislation — which follows a series of hearings by Frank’s House Financial Services Committee — was welcomed by the National Community Reinvestment Coalition, which promotes lending in underserved areas.
NCRC lauded the bill’s proposed protections, including prohibitions on steering and defense to foreclosure, but urged lawmakers to strengthen provisions governing assignee liability. The group also applauded the fact that the bill would not preempt local statutes.
If states did not pass laws adopting the standards set forth in the bill within two years, the U.S. Department of Housing and Urban Development (HUD) would be directed to issue regulations requiring mortgage brokers in those states to act “solely in the best interest” of the consumer.
The American Bankers Association, however, said the group has “serious concerns” with some aspects of the proposed bill, including its increased regulatory burden on federally chartered lenders and a lack of a set of national standards for all mortgage lenders.
“We recognize that this bill as introduced is not set in stone, and we appreciate the opportunity to work with the committee as the legislative process moves forward,” the ABA said in a statement.
A spokesman for the Mortgage Bankers Association, which also advocates uniform national lending standards, did not return a call for comment.
In a statement, Watt said the bill, if enacted, would be “a significant step forward to clean up and prevent a number of the questionable practices that, unfortunately, took hold in the mortgage lending industry in the last several years.” Watt said he hoped the industry would “embrace the changes and allow the bill to move forward quickly.”
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