House Committee About To Approve Mortgage Origination Standards

Posted on November 7th, 2007 by saman

Legislation is about to be passed by the House Financial Services Committee that will set up new rules for lenders that would protect borrowers. It would also make lenders liable for damages if they issue mortgages that don’t comply.

The bill now pending is expected to be approved momentarily over the objections of mortgage bankers and many financial services organizations. At the same time, the Federal Reserve is in the midst of preparing a set of rules to curb abusive lending methods. The Federal Reserve also alerted Congress to utilize care in considering legislative proposals.

The Mortgage Reform and Anti-Predatory Lending Act would make mortgage originators and their employees either have a state license or to be licensed by the federal government under their new Nationwide Mortgage Licensing & Registry System. The bill would also ensure that borrowers receive fair treatment that would prevent future mortgage defaults and foreclosures.

The new bill would ban lenders from ‘steering’ their borrowers into expensive loans by necessitating that they specify the exact terms and costs of every loan and preventing them from building various ‘incentives’ into their loan packages. There would also be limited liability to secondary mortgage market lenders who securitize loans that fail to adhere to the new requirements. It would not, however, make investors in mortage-backed securities liable in any way.

Not everyone is pleased with the new bill. The Mortgage Banker’s Association and the Financial Services Roundtable warned the House Committee chairman that they were against several major provisions and especially language that doesn’t adequately ensure that new federal rules for lenders will preempt state and local laws. The MBA called it ‘an uneven environment’ for both lenders and borrowers. Both groups also told the committee that they were against language in the bill that requires closer scrutiny over non-prime loans. They added their opinion that this would result in making it harder for non-prime borrowers to get a home mortgage loan.

The MBA also opposed language that would allow tenants in a foreclosed property to stay there for 90 days. Both groups, however, stated that they would continue working with House leaders to improve the legislation before it is approved by the entire House.

The committee is also scheduled to consider a bill from a Pennsylvania Representative that would create a national appraisal system of standards and penalize appraisers who fail to follow the rules. The bill also provides for federal oversight of state regulators and creates tougher standard for appraisers who seek a license.

As we all know, getting anything positive through the labyrinth of politics is a challenging assignment indeed, and while troubled homeowners await relief, the clock continues to tick on their problems with many thousands of ARMs preparing to ‘reset’ in the months ahead. There is no doubt whatsoever that relief is needed and it’s needed quickly if further foreclosures and home losses are to be prevented.