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House passes mortgage reform bill.

Legislation intended as "historic bipartisan mortgage reform" that cleared the House of Representatives in November will end up hurting more customers than it will help, according to the Mortgage Bankers Association.

Passed in reaction to what lawmakers called the "current mortgage crisis," the Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915) was approved by a vote of 291 to 127 on Nov. 15.

Meanwhile, in a late-breaking development, Senate Banking Committee Chairman Christopher Dodd (D-Connecticut) filed his long-anticipated anti-predatory-lending bill--the Homeownership Preservation and Protection Act of 2007--on Dec. 12.

The House bill, H.R. 3915, would 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 would also expand and enhance consumer protections for "high-cost loans" under the Home Ownership and Equity Protection Act (HOEPA), as well as include protections for renters of foreclosed homes. It also establishes an Office of Housing Counseling through HUD.

While lawmakers accommodated a number of concerns that MBA had with the bill--including passage of an amendment that would exempt loans insured by the FHA from the bill--many of MBA's key concerns were not addressed, according to MBA Chairman Kieran P. Quinn, CMB.

"Have no doubt, this bill will limit credit availability and options for thousands of Americans who want to grab their share of the American dream of homeownership," said Quinn. "It will eliminate tools that millions of Americans have used to become successful long-term home-owners."

In addition, Quinn said the "rebuttable presumption" provision would still expose lenders to an unacceptable liability risk, and MBA also fears the lower HOEPA triggers will eliminate certain good products from the mortgage market, and thus eliminate viable choices for some borrowers.

The bill "still allows for the patchwork of state laws that serve to foster confusion for lenders and borrowers alike," said Quinn. "It creates ambiguity around the legitimate payments between secondary and primary mortgage markets that increase the flow of capital to homeowners."

Key provisions of the House bill include:

* The licensing and registration of individual mortgage originators and registration of bank employees who originate mortgages--including fingerprints, personal history and experience, and the requirement they meet minimum standards including pre-licensing education and written tests--as well as the establishment of a Nationwide Mortgage Licensing System and Registry (NMLSR).

* Requiring mortgage originators to provide full disclosures and present consumers with appropriate mortgages, including ensuring that a borrower has a reasonable ability to repay the loan and will receive a net tangible benefit from the loan in the case of a refinancing.

* The establishment of residential mortgage origination standards, including a federal duty of care and anti-loan-steering provisions.

* Expanding the scope of and enhancing consumer protections for "high-cost loans" under HOEPA by lowering points and fees and interest-rate triggers prohibiting practices that increase the risk of foreclosure, such as balloon payments, encouraging a borrower to default and requiring more pre-loan counseling.

With a bill passed in the House, all eyes shift to the Senate and to Dodd's proposed legislation.

Quinn expressed MBA's concern about Dodd's bill, in that, among other things, it does not provide a uniform national standard to protect consumers from predatory lending--"a step we feel is necessary to ensure a smooth and efficient marketplace," said Quinn.

"The introduction of this bill is an important development, as it will jump-start the debate in the Senate over how to prevent a recurrence of the current troubles facing the mortgage market," added Quinn. "We are still reviewing the specific language in the bill, but there are several provisions that concern us deeply."

Although nothing is as yet scheduled, hearings on Dodd's bill will likely be held early in the new year.
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Title Annotation:Briefing Book
Publication:Mortgage Banking
Geographic Code:1USA
Date:Jan 1, 2008
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