The legislation, HR 3915, would establish a national mortgage licensing system and registry for mortgage brokers and bank employees who originate mortgages; create loan-origination standards and minimum standards for the issuance of all mortgages; enhance consumer protections such as safeguards for renters of foreclosed homes; and create an office of housing counseling within the U.S. Housing and Urban Development Department.
A number of consumer and advocacy groups, including the Center for Responsible Lending, Consumer Federation of America and Consumers Union, among others, expressed support for some provisions of the proposed bill while criticizing the bill’s lack of legal recourse for consumers “who are taken advantage of by unscrupulous or reckless lenders, brokers and investors.”
The groups have also charged that “limited remedies in the bill do not give Wall Street investors who buy mortgages and package them as securities adequate incentives to police themselves.”
Mortgage industry advocates argued in a congressional hearing last week that the legislation creates legal pitfalls for investors that could worsen the credit crunch, raise borrowing costs and make it more difficult for subprime borrowers who face mortgage rate hikes to refinance into more affordable mortgages.
Meanwhile, an online petition opposing the legislation states, “We believe (the bill) is burdensome to the independent mortgage broker, anti-competitive, and … will actually harm consumers.”
The legislation, which could reach the House floor next week, provides limited federal preemption of state laws relating to assignee and securitizer liability but provides that states may pass laws or add remedies relating to other parties, including creditors. It would also prohibit certain prepayment penalties, and would ban single-premium credit insurance and mandatory arbitration for mortgage loans.
Loan assignees/securitizers would not be liable for a loan that violates the bill’s minimum standards if that individual “provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer,” or “has a policy against buying mortgage loans that are not qualified mortgages” and works to adhere to the policy while also taking other steps.
The bill would impose heightened consumer protections for high-cost loans, including a prohibition on balloon payments and excessive fees for payoff information, modifications or late payments.
Creditors would be required under the bill to make a reasonable determination at the time the mortgage is originated that the consumer has a reasonable ability to repay the loan and that a refinanced loan will have a net benefit for the consumer.