WASHINGTON -- Top legislators on Capitol Hill are preparing to take up a comprehensive plan that would fundamentally reform the home mortgage market, starting this year.
Had the same rules and standards been in place earlier in the decade, say congressional supporters, it could have eliminated much of the funny-money loans, slipshod underwriting and Wall Street abuses that distorted the market from 2002 through 2006. The boom wouldn't have been as big, and the bust might not have happened.
The Mortgage Reform and Anti-Predatory Lending Act of 2009 (H.R. 1728) was introduced March 26 by co-authors Rep. Brad Miller, D-N.C., House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., and Rep. Mel Watt, D-N.C. It is expected to move quickly through the House this month and go to the Senate by May. The odds of passage in some form are high, according to banking and housing industry lobbyists.
The bill is a tougher version of one pushed by Miller in 2007 that passed the House but foundered in the Senate. This year, however, as a result of heavier Democratic majorities in both houses, "the political climate has changed," said Miller. "The foreclosure crisis has wreaked havoc on middle-class families and our economy as a whole. The industry's arguments for watering the bill down are not at all convincing."
Here's what the legislation would do:
-- Ban all fees paid to loan officers that are tied to the interest rate of the mortgage or the type of the loan. During the headiest years of the boom, Wall Street investment banks paid mortgage brokers higher fees if they originated exotic loans such as short-term subprime adjustables, interest-only, payment-option, and "stated income" no-documentation loans with minimal or no down payments.
The lending industry also routinely paid brokers higher fees for originating mortgages that carried rates above prevailing levels. Loan officers frequently steered applicants with marginal credit histories into loans with excessive rates and penalties -- and were paid extra by banks and Wall Street for doing so. Studies have documented that minority and first-time borrowers disproportionately were marketed loans with unnecessarily high fees and penalties, based on their credit scores.
Continued... |