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Housing agenda advances in Congress.

Housing legislation that would increase consumer protections for homebuyers and improve federal foreclosure prevention efforts for struggling homeowners advanced in both the House and Senate last week. H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act passed the House Financial Services Committee by a vote of 49 to 21 and S. 896, the Helping Families Save Their Homes Act, could pass the Senate soon.

H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, was introduced by North Carolina Reps. Mel Watt (D) and Brad Miller (D) and is modeled on their state predatory lending law. The bill would protect homebuyers from certain predatory lending practices and require that all mortgage loans be well-suited to the financial means of the homebuyer. The legislation reflects the request NLC made to Congress in its 2009 Issue Brief on Strengthening and Stabilizing the Housing Market.

Under the bill, risky lending and borrowing practices that contributed to the housing bubble and subsequent foreclosure crisis would be prohibited. Specifically, borrowers would be prohibited from deliberately misstating their income and mortgage originators would be required to take reasonable steps to ensure borrowers can repay the loans they are sold. Similarly for mortgage refinancings, the bill requires the mortgage originator to show the refinancing will provide a net tangible benefit to the consumer.

The bill bans controversial incentives for lenders and mortgage brokers that steer borrowers into larger or higher-cost loans than those for which they qualify, such as yield spread premiums and other compensation structures tied to the size of a loan. And mortgage brokers would be required to disclose to the buyer all compensation they receive from the transaction.

The bill also provides new protections for renters in foreclosed properties, including a 90-day grace period to relocate after notification of foreclosure.

Finally, the bill seeks to reduce risk in the secondary mortgage market by requiting lenders to retain at least 5 percent of the credit risk of each loan sold or otherwise conveyed to a third party. Risky investments and insurance deals on mortgage securities are widely viewed as a leading cause of the current economic downturn.

According to House Financial Services Chairman Barney Frank (D-Mass.), the bill could be debated by the full House as early as May 7.

In the Senate, debate is currently underway on S. 896, the Helping Families Save Their Homes Act. Although the House passed a similar bill on March 5 (H.R. 1106), the Senate is working on a different version of the bill that drops a contentious bankruptcy provision. Under the House passed bill, bankruptcy judges would be given the authority to modify mortgage loans to prevent foreclosures on primary residences as part of the bankruptcy process. Proponents argue that federal foreclosure prevention efforts to date have fallen short, and point out that foreclosures are at a 25-year high. NLC passed a resolution in support of new judicial authority to modify mortgages at the 2008 Congress of Cities Conference.

The baking industry, however, is opposing the change. Rather than suffering a potential defeat on the bill, the Senate removed the bankruptcy provision from the underlying bill and Sen. Richard Durbin (D-Ill.) offered an amendment to add the bankruptcy provisions back in.

On Thursday, the amendment failed by a vote of 45 to 51, with all Republicans and 12 Democrats opposing. However, proponents will have another chance to maintain the bankruptcy provision when the House and Senate meet in conference committee to resolve differences between the two bills.

With the bankruptcy provision removed, the underlying bill is expected to pass the Senate soon.-The bill makes additional improvements to federal foreclosure mitigation efforts, including expanding eligibility for homeowners seeking assistance under HUD's Hope for Homeowners program.
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Author:Wallace, Mike
Publication:Nation's Cities Weekly
Article Type:Law overview
Geographic Code:1USA
Date:May 4, 2009
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