House Financial Service Committee Approves Comprehensive Mortgage Reform and Anti-Predatory Lending Legislation
|November 7, 2007|
Washington, DC - The House Committee on Financial Services today approved historic bipartisan mortgage reform legislation and anti-predatory lending practices by a vote of 45 to 19. H.R. 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007" will create a licensing system for residential mortgage loan originators, establish a minimum standard requiring that borrowers have a reasonable ability to repay a loan, and will attach a limited liability to secondary market securitizers. The legislation will also expand and enhance consumer protections for “high-cost loans,” will include protections for renters of foreclosed homes, and will establish an Office of Housing Counseling through the Department of Housing and Urban Development.
The committee also unanimously adopted a manager’s amendment in the nature of a substitute, authored by Financial Services Committee Chairman Barney Frank (D-MA), Ranking Member Rep. Spencer Bachus (R-AL), along with the bill’s co-authors Reps. Melvin Watt (D-NC) and Brad Miller (D-NC), and Reps. Judy Biggert (R- IL), Deborah Pryce (R-OH), Shelley Moore Capito (R-WV), and Steven LaTourette (R-OH). Specifically, the legislation, as reported from committee will do the following:
Establishes a Licensing System for Residential Mortgage Loan Originators.
Provides for licensing and registration of individual mortgage brokers and registration of bank employees that originate mortgages, as well as the establishment of a Nationwide Mortgage Licensing System and Registry (NMLSR).
Creates a Residential Mortgage Loan Origination Standards
Federal Duty of Care: All mortgage originators (including individuals as well as companies and banks that originate mortgages) will be subject to a federal duty of care that requires (1) licensing and registration, as applicable, under State or Federal law (including under subtitle A), (2) presenting consumers with appropriate mortgage loans (i.e., consumer has reasonable ability to repay and receives net tangible benefit, and loan does not have predatory characteristics), (3) making full disclosures to consumers, (4) certifying to lenders compliance with mortgage origination requirements, and (5) including a mortgage originator’s unique identifier in loan documents.
Anti-Steering: For mortgage loans that are not prime loans, no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that varies with the terms of the mortgage loan (except for size of the loan and number of loans). Regulations will be promulgated to prohibit mortgage originators from (1) steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide net tangible benefit, or has predatory characteristics, (2) steering any consumer from a prime loan to a subprime loan, and (3) engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.
Remedies: Remedies will be up to three times broker fees plus costs.
Establishes Minimum Standards for All Mortgages
Ability to Repay/Net Tangible Benefits: Based on Federal bank regulatory guidance and North Carolina standard. Requires creditors to make a reasonable determination, at the time the mortgage is consummated, that:
Safe Harbor: A presumption can be made that the minimum standards (reasonable ability to repay and net tangible benefit) are met for “qualified mortgages” and “qualified safe harbor mortgages.” Qualified mortgages (prime loans) are presumed to meet the minimum standards and this presumption may not be rebutted. For qualified safe harbor loans, the presumption may be rebutted only against creditors.
Assignee/Securitizer Liability (does not extend to trusts and investors): Subject to exemptions below, for loans that violate the minimum standards (reasonable ability to repay and net tangible benefits), a consumer has an individual cause of action against assignees and securitizers for rescission of the loan and the consumer’s costs for rescission.
Defense to Foreclosure: When the holder of a mortgage loan or anyone acting on behalf of the holder initiates a judicial or non-judicial foreclosure, (1) the consumer who has a rescission right under this bill may assert such right as a defense to foreclosure against the holder to forestall foreclosure, or (2) if the rescission right has expired, the consumer may seek actual damages (plus costs) against the creditor, assignee, or securitizer.
Effect on State Laws: Provides limited preemption of State laws relating only to assignee/securitizer liability (but not to creditor liability). Provides for a national standard and unique Federal remedy for assignee/securitizer liability arising from a claim regarding lack of reasonable ability to repay and lack of net tangible benefit. States, however, may pass laws or add remedies relating to the liability of other parties, including the creditors.
Renters: Provides certain protections for renters when the homes they rent go into foreclosure.
Additional Standards and Requirements: Prohibits certain prepayment penalties, as well as single-premium credit insurance and mandatory arbitration, for mortgage loans.
Enhances Consumer Protections for High-Cost Mortgages
Adopted from the Miller-Watt bill of 109th Congress (HR 1182), this expands the scope of and enhances consumer protections for “high-cost loans” under HOEPA by, among other provisions:
Creates the Office of Housing Counseling
Incorporating Rep. Biggert’s bill (HR 3019), this provision establishes within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling.