Last week the Mortgage Reform and Anti Predatory Lending Act of 2007 passed out of the House Financial Services Committee with the support of nine Republicans. It's far from perfect, but it represents a small step in the right direction. The mortgage industry is fighting it tooth and nail.
The bill, H.R. 3915, will reform mortgage practices in three areas.
- The bill will establish a federal duty of care, prohibit steering, and call for licensing and registration of mortgage originators, including brokers and bank loan officers.
- The new legislation will set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay.
- The legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. However, individual investors in these securities would not be liable.
Finally, the bill expands and enhances consumer protections for “high-cost loans” under the Home Ownership and Equity Protection Act and includes important protections for renters of foreclosed homes. In case of foreclosure, any successor who takes over the property will have to honor preexisting leases. Tenants without a lease will have at least 90 days before being required to vacate. In addition, the bill will require counseling for certain first time homebuyers and incorporates anti-steering legislation.
The more immediate issue, though, is what to do about the millions of people who live in homes that are in danger of going under in the coming tidal wave of foreclosure. One proposed bill that would allow bankruptcy judges to amend the terms of home mortgages. As the law stands, the terms of a mortgage on a yacht or a vacation home can be adjusted during bankruptcy, but the primary residence is off-limits.