Anti-predatory-lending bill now goes to Senate
In an effort to clamp down on predatory lending, the House of Representatives on Thursday approved a bill that would establish some sweeping standards, from a national licensing system for mortgage loan officers to protection for renters living in homes to be foreclosed.
The Mortgage Reform and Anti-Predatory Lending Act, which passed by a vote of 291 to 127, will go to the Senate, but its fate is uncertain because the powerful mortgage industry, including the Mortgage Bankers Association, and the Bush White House are against it. Critics say regulatory efforts have been under way to address the mortgage crisis, and they fear the bill would pave the way for more litigation and scare lenders from offering mortgages.
The bill would set several protections, liability definitions and penalties for the first time.
For the industry, the bill would hold Wall Street firms liable if they buy, sell and back loans given to borrowers who clearly could not pay, and it would give borrowers the right to have their loan terms rewritten. Also, a national licensing and registration system would be created for mortgage loan officers, who will be licensed for the first time in New York next year.
On first-time protections for consumers, the bill would set notification procedures for renters in foreclosed homes to give them enough time to find new shelter.
Also, the legislation tackles prepayment penalties, which Bush administration and industry officials don’t want to outlaw. One provision bars prepayment penalties on high-cost subprime mortgages, while another, from Rep. Carolyn Maloney (D-NY), limits how much lenders can charge in prepayment penalties.
“Any solution to the subprime mortgage crisis must change the incentives for all market participants,” Maloney said in a statement, “and this legislation does just that.”
Some proposals in the bill may be difficult in practice. One would require mortgage loan officers to make sure borrowers would get a tangible, net benefit to refinancing or getting a loan. Another would bar lenders from “steering” people to subprime loans that would result in higher compensation for mortgage loan officers and brokers.
Supporters hope passage of the bipartisan bill will ease the credit crunch that’s resulted from the subprime collapse and the “exotic” loans created for people who had trouble getting more traditional mortgages.
“We are dealing with legislation that seeks to prevent a repetition of events that caused one of the most serious financial crises in recent times,” Barney Frank (D-Mass.), chairman of the Financial Services Committee, said in a press release. “There is no debate about what is the largest single cause of that. Innovations in the mortgage industry in themselves are good and useful but were conducted in such a complete unregulated manner and led to this crisis.”
Getty Images photo
E-mail
Facebook
Digg
Delicious