Legislation that would tighten federal regulation of financial institutions and create a new agency tasked with protecting consumers has passed the House of Representatives in a 223-202 vote.
An amendment that would have stripped creation of the Consumer Financial Protection Agency from the bill was defeated, although industry groups are expected to continue lobbying against such an agency in the Senate.
The Mortgage Bankers Association objected to the bill in part because the group wants uniform national standards for all lenders that preempt states from adopting their own, even more restrictive and potentially contradictory rules.
While some financial industry groups are opposed to the creation of a Consumer Financial Protection Agency, real estate brokerages would be exempt from its oversight.
Real estate and lending industry groups also back language in the bill that would give the new agency 60 days to implement uniform appraisal rules that would replace controversial procedures for appraisals on loans slated for purchase by Fannie Mae and Freddie Mac.
HR 4173, The Wall Street Reform and Consumer Protection Act of 2009, stipulates that the Home Valuation Code of Conduct, implemented on May 1, "shall have no force or effect," once the new rules are in place.
Intended to protect appraisers from coercion by lenders to hit predetermined values, critics say the Home Valuation Code of Conduct has had the unintended effect of helping appraisal management companies carve out a bigger share of the appraisal business.
That’s hurt the quality of appraisals, because many experienced appraisers won’t work for appraisal management companies because they don’t pay enough, critics say. The companies have allegedly employed appraisers with little experience in the neighborhoods they are assigned to work in (see story).
HR 4173 stipulates that the new appraisal rules include a requirement that lenders compensate appraisers "at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised."
The rules must also allow anyone with an interest in a real estate transaction to ask an appraiser to consider additional information about a property, provide further detail, substantiation or explanation for their valuation, and correct errors in the appraisal report. …CONTINUED
The bill mandates that the rules should not prohibit lenders, or Fannie Mae and Freddie Mac, from accepting appraisal reports completed by appraisers selected or compensated by mortgage loan originators, as long as the appraisers are licensed.
As introduced on Dec. 2, the bill would also give the Consumer Financial Protection Agency one year to propose new mortgage disclosure forms that would meet both the requirements of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) — a step long advocated by the real estate and lending industries.
After a public review period, the new uniform loan disclosure forms would replace new RESPA disclosure forms that the Department of Housing and Urban Development has mandated that lenders begin using on Jan. 1.
An attempt to amend the bill to allow bankruptcy judges to "cram down" the principal of troubled borrowers’ loans was rejected, a move welcomed by the American Bankers Association.
"Both the House and Senate have now voted this year against allowing judges to reduce the amount owed on a mortgage, change interest rates, or stretch out the terms of a loan in a Chapter 13 bankruptcy proceeding," the group said. "It is important to defeat measures of this nature as they would bring unnecessary risk and uncertainty to the mortgage market and would make home loans more expensive and less available for consumers."
Dozens of amendments to HR 4173 have been introduced in recent days. According to a summary of the bill released by the House Financial Services Committee after today’s vote, the sweeping bill would also:
- Outlaw predatory mortgage lending practices: By incorporating a mortgage reform and anti-predatory lending bill passed by the House passed earlier this year, HR 1728, the bill outlaws many practices of the subprime lending boom and requires lenders to assess a borrower’s ability to repay a loan.
- Regulate derivatives: Standardized swap transactions between dealers and "major swap participants" would have to be cleared and traded on an exchange or electronic platform.
- Require registration of hedge funds: The bill requires almost all advisers to private pools of capital to register with the Securities and Exchange Commission, subjecting them to systemic risk regulation by a new financial stability regulator.
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