The proposed H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act moved through the House on May 7, 2009 with a vote of 300 to 114 in favor of new legislation that is intended to amend the Truth in Lending Act to specify duty of care standards for originators of residential mortgages.
The bill’s general theme of transparency in lending may sound appealing to the crowd that believes predatory lending is the primary cause of the foreclosure crisis.
Measures that require a borrower to prove their ability to repay a loan, full and equal disclosure of eligible mortgage programs, responsible lending practices, and consumer protection against abusive rates and fees are a few components of H.R. 1728 that few industry professionals would disagree with at first glance.
However, some of these federal restrictions will impact how mortgage brokers, bankers, and correspondent lenders are able to conduct business in a manner that protects the fiduciary interests of the consumer.
A few key components of H.R. 1728 to be aware of:
- Prohibiting Yield Spread Premium and placing restrictions on the amount of points or fees that can be included in the new loan balance will essentially eliminate all “No Cost” mortgage loans for borrowers who may need to rely on the lender covering a portion of their closing costs.
- Defining a certain type of loan as a “Qualified Mortgage” will steer lenders away from offering anything other than a 30 year fixed rate mortgage.
- Requiring creditors to keep a 5% credit risk as a way to demonstrate that they have some “skin in the game” may force all non-depository lenders who sell or transfer their loans to a third party out of the business. Keep in mind that this rule will only pertain to anything other than a 30 year fully documented mortgage.
While this bill still has to make its way through the Senate, there are several online discussions developing over the significance H.R. 1728 will have on the future of the mortgage industry.
Whether you are new to this topic, or have valuable insight and knowledge that can help bring the rest of us up to speed, I’d like to encourage you to share your thoughts here so that we can help educate all originators, real estate agents, and our clients.
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The bill is designed to encourage traditional, fixed rate mortgages which are known to be safer.However, from the consumer perspective H.R. 1728 is not perfect. Its main weakness is that it does not create strong enough penalties for companies who break the rules.
Reverse Mortgage
Mark – as usually, your research is helping those of us in the industry – well done.
Chris
“The bill is designed to encourage traditional, fixed rate mortgages which are known to be safer.”
The only safe loan is one that borrowers are able to pay. It also helps if the borrowers understand the terms of the loan as well.
“Its main weakness is that it does not create strong enough penalties for companies who break the rules. “
This bill will allow borrowers to seek punitive damages from loan originators and lenders for up to three times the loan amount on all non-30 year fixed programs. What this bill does not have are measures that penalize borrowers and other parties to the transaction that break the rules.
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