The Bush administration is opposed to most provisions of proposed legislation aimed at predatory lenders, saying they would result in greater uncertainty and increased litigation, worsening the credit crunch and ultimately reducing home ownership.
The mortgage lending industry also objects to many provisions of HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, which was approved Nov. 6 by the House Financial Services Committee and is headed for a full House vote this week.
The bill’s most controversial provisions include a ban on yield spread premiums, prohibitions on prepayment penalties on subprime loans, and the creation of limited “assignee liability” for companies that securitize loans for sale on the secondary market.
In a policy statement on HR 3915, administration officials said they favor simplified disclosures to borrowers, a greater focus on unfair and deceptive lending practices, and better training and oversight of loan originators.
Regulatory efforts “are already underway to address many of the issues raised by HR 3915,” the Bush administration said in the statement. Those efforts include planned revisions to the Real Estate Settlement Procedures Act (RESPA) to “substantially enhance mortgage disclosure” through standardized statements of loan terms and settlement costs.
The administration said it is also “encouraged” by the Federal Reserve’s stated goal of improving disclosure requirements and developing new national standards for unfair and deceptive practices, under authority granted to the Fed by the Home Ownership and Equity Protection Act (HOEPA).
Provisions that “could overly constrict the primary and secondary markets for mortgage finance” include the bill’s specific underwriting standards, assignee liability provisions, and subjective obligations for mortgage originators,” the policy statement said.
The Bush administration is concerned these and other provisions “could lead to greater uncertainty and increased litigation, which could cause an undesirable reduction in mortgage credit and a drop in future homeownership.”
The statement stopped short of threatening a veto, but said the administration “looks forward to working with Congress to address its concerns as the process moves forward.”
Although HR 3915 would require all mortgage originators to be licensed by either state or federal regulators, it would stop short of creating uniform national lending standards advocated by industry groups like the Mortgage Bankers Association.
As approved by the Financial Services Committee, the bill would create minimum standards, but leave the door open for states to keep or adopt their own, even stricter rules, for lenders not regulated at the federal level.
Echoing the Mortgage Bankers Association, the Bush administration said it supports national standards for mortgage originators that preempt state laws, in order to prevent the creation of “a patchwork of different legal regimes.”
A consumer advocacy group, the Center for Responsible Lending, maintains that states should have the ability to make and enforce their own rules for lenders in order to respond quickly to new challenges. The group also supports many of the bill’s other provisions, including a ban on yield spread premiums.
The Center for Responsible Lending, however, has criticized language in the bill that it claims would protect Wall Street investors who purchase mortgage-backed securities against lawsuits by aggrieved borrowers.