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Mortgage payday loan plans introd by Senator
WASHINGTON (7/27/12)--Two plans of potential interest to credit unions, one that would create a new home refinancing program and another that would limit some online payday lending practices, were introduced by Sen. Jeff Merkley (D-Ore.) this week.

The mortgage plan would allow homeowners that owe more than their home is worth to refinance at reduced interest rates. Under the plan, the Federal Housing Administration, Federal Home Loan Banks or the Federal Reserve would establish a temporary trust that would purchase underwater mortgages that meet certain criteria. The temporary housing trust could be funded with money that has already been allocated to state or federal financial regulators, Merkley said.

Homeowners whose mortgages are held under the trust would then be given three years to refinance their loan. A white paper describing the plan outlines three refinancing options for homeowners:
  • A 15-year, 4% mortgage that would aim to rebuild home equity;
  • A 30-year, 5% mortgage that would aim to reduce monthly payments; or
  • A two-part mortgage, consisting of a first mortgage for 95% of a home's current value and a "soft second" mortgage on the remaining 5%. The second mortgage would not accrue interest or require payment for five years.
Loans held in the portfolio could be sold to private investors, or paid off by homeowners, the paper said.

Merkley said the plan could be developed into a pilot program without the need for legislative action.

In addition releasing the refinancing plan outlined in the white paper, Merkley also this week proposed a bill that would restrict some online payday lending practices. The legislation, known as the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act, would close federal loopholes that allow some online lenders to use practices that are banned in many states, Merkley said in a release.

The bill would:
  • Require all lenders to abide by state rules governing short-term small-amount lending practices;
  • Stop payday lending by offshore websites;
  • Give the Consumer Financial Protection Bureau the authority to shut down payment processing for online lenders that are violating state and other consumer lending laws, but avoiding enforcement;
  • Ensure that third parties cannot gain control of consumer bank accounts through remotely created checks;
  • Prevent online payday lenders from removing funds from consumer checking accounts without authorization; and
  • Ban so-called "lead generator" websites that portray themselves as payday lenders, but actually collect consumer information on applications that are sold on to payday lenders.
Merkley said it is unacceptable that financial predators are "using the 'Wild West' of the Internet" to strip wealth from families.

"We must close the loopholes that have allowed companies to utilize practices already banned in many states," he added.
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