Industry News

Senate Democrats propose new restrictions on mortgage lenders

Yield spread premiums, prepayment penalties targeted

Senate Democrats have rolled out a bill that, like legislation passed by the House last month, is aimed at preventing mortgage brokers from steering borrowers into higher-cost loans in order to collect bigger fees, and bars prepayment penalties on subprime and high-cost loans. The Homeownership Preservation and Protection Act of 2007, introduced Wednesday by Sen. Chris Dodd, D-Conn., would require loan servicers to implement loss mitigation strategies before initiating foreclosure proceedings against borrowers. The Senate bill would also require lenders to follow existing federal guidelines for subprime and nontraditional mortgage loans, and lower the threshold for loans to fall under even stricter requirements for high cost mortgages as defined by the Home Ownership Equity Protection Act, or HOEPA. But like legislation approved by the House Nov. 15, Dodd's bill would limit the "assignee liability" of investors who buy securities backed by mortgage loans, protecting them from class-act...