House Bill To Crack-Down On Mortgage Lenders Passes

Posted on November 19th, 2007 by saman

In the face of never-ending increases in mortgage foreclosures, the House of Representatives just voted to put legal pressure on mortgage lenders. The new bill would force lenders to become licensed, require them to ascertain whether borrowers have the ability to repay their loans and imposes fines for those who ‘steer’ borrowers into sub prime loans.

The general idea is to prevent still more Americans from becoming part of the current mortgage foreclosure crisis brought on primarily be approving and issuing home loans to people with shaky finances and poor credit histories. It is highly focused to prevent the issuance of sub prime adjustable rate mortgages (ARMs) with low ‘teaser’ interest rates that suddenly reset and as much as double monthly payments. More than 2-million such mortgages are going to reset by the end of 2008.

The new bill certainly can’t undo the damage already done during the crisis. It does, however, make a similar occurrence later on very unlikely. Both Republicans and the White House stated that they feared that ‘congressional meddling’ in the mortgage markets might make things even worse by making it more difficult to refinance existing loans and by making it virtually impossible for poor people to buy a house.

Democrats countered that the sub prime market badly needs changes to ensure that people get loans that are beneficial, not detrimental. They added that the bill is designed to reform the sub prime market and make it function properly. The White House did not threaten to veto the new bill. But they did echo Republican concerns to no one’s surprise.

The new bills provisions include: Banning lenders from making loans that borrower’s are not able to pay back; Barring lenders from steering people into refinanced loans with no benefits to them . Fines for doing so will cost lenders three times the broker fee and costs;

Making Wall Street banks who put mortgage securities into investments liable for violations; Prohibiting excessive fees for payoff data or late payments, financing of points and fees, and practices that increase risks such as balloon payments; and creating a nationwide licensing system for bank loan officers and mortgage brokers.

At the same time, the House also passed a $200 million allocation for mortgage counseling in HUD which requires Senate approval. This money has to be used only for non-profit foreclosure prevention programs that provide counseling to people who fear losing their property due to risky sub prime loans.

It seems clear that the many provisions of the new House bill are badly needed in America today if the current crisis is to end in the foreseeable future. It’s too bad that both political parties can’t work together on this as a bi-partisan team concerned more with the overall US economy than the bottom-line profits of some large financial organizations. However, it is an election year and political considerations seem to override the economic well being of middle-income Americans.

Let us hope that this bill reaches the point where it can make a difference. It is an important step in the right direction!