Landlords and lawyers relief act?

Before many of his colleagues crossed the aisle to join Democrats in passing HR 3915 this evening, Florida Republican Rep. Tom Feeney derided the bill as the "landlords and lawyers relief act." In Feeney's view, if signed into law, the bill will tighten credit, making it harder for renters to become homeowners, and also give lawyers more opportunities to sue lenders and the Wall Street investors who back them.

But the vote on HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, was not even close --  291-127. Rep. Barney Frank, D-Mass. -- chairman of the House Financial Servcies Committee -- was credited with winning bipartisan support by fashioning a compromise limiting "assignee liability," or the right of borrowers to sue companies that securitize loans for sale to Wall Street investors.

In previous testimony before Frank's committee, the Center for Responsible Lending panned the bill's limited assignee liability provisions as weak. Wall Street's demand for securities backed by subprime loans, the group said, "lies at the heart of today's mortgage meltdown."

The demand was so intense that subprime lenders abandoned reasonable qualifying standards, forgot about standard documentation requirements, and ignored whether borrowers could actually afford the loan, said CRL's Michael Calhoun. Calhoun said borrowers should have the right to go after investors who hold their loans when loan originators use deceptive or predatory practices.

HR 3915 gives individual borrowers the right to sue companies that securitize loans when originators break the law, but bars the class action lawsuits that make lawyers salivate and provide the greater incentive for securitizers to pay attention to how loans are originated.

Another provision of the bill that rankled mortgage brokers -- a ban on yield spread premiums and other incentives paid to loan originators who place borrowers in high-cost loans -- remained part of the bill. The bill's language was amended to clarify that borrowers would still be permitted to choose loans with higher origination fees or costs, and to finance those fees into the loan, in order to obtain a lower interest rate.

But the amendment stipulated that the amount of compensation paid to the loan originator "cannot vary based on (loan) terms." During Thursday's debate over the bill, Frank said that by the time it becomes law, "it will be very clear to anybody ... there is no possibility of anyone getting higher compensation in return for putting someone in a higher cost loan."

To the horror of critics, the bill was also amended to strengthen restrictions on prepayment penalties. Originally, HR 3915 only banned prepayment penalties -- fees assessed on borrowers to discourage them from refinancing -- on subprime loans. As amended, prepayment penalties will be capped for the first three years on prime loans and banned altogether after that.

A co-sponsor of the amendment, Rep. Albio Sires, D-N.J., said he was "shocked" to learn he owed a $7,500 prepayment penalty when he had to sell his home after he was elected to Congress.

A full story on HR 3915 will be in Friday morning's Inman News headlines.

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