WASHINGTON (5/1/09)--A bill to curb abusive and predatory lending could be on its way to the House as early as next week. On Wednesday, the House Financial Services Committee approved H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009. The legislation was sponsored by Reps. Brad Miller (D-N.C.), Mel Watt (D-N.C.), and Barney Frank (D-Mass.). The bill would:
* Ensure that mortgage lenders make loans that are beneficial for a borrower by banning yield spread premiums and other abusive compensation structures that reward originators for “steering” borrowers toward higher cost loans; * Require originators to disclose to consumers the compensation they receive from the transaction; * For mortgage refinancings, require that all loans provide a net tangible benefit to the consumer. Also, it would make the secondary mortgage market responsible for complying with these standards when it buys loans and turn them into securities; and * Require new federal rules to be written to require creditors to retain an economic interest in a material portion--at least 5%--of the credit risk of each loan that the creditor transfers, sells, or conveys to a third party. Federal banking agencies would have the authority to make exceptions to the bill’s risk retention provisions, including form and amount.
H.R. 1728 also encourages the market to move back toward fixed-rate, fully documented loans. During the housing boom, some mortgage lenders moved away from traditional underwriting practices in favor of more exotic loans. The Credit Union National Association (CUNA) supports the bill’s intent, although it has warned lawmakers that the legislation could conflict with regulatory actions already in place to curb abusive lending. Prior to the panel's approval of the bill, CUNA President/CEO Dan Mica sent a letter to Frank and Rep. Spencer Bachus (R-Ala.), encouraging the committee to consider "only those statutory changes which are absolutely essential." CUNA also has advised federal lawmakers that some provisions in the bill may be more appropriate for the mortgage brokerage industry. Credit unions have a long history of favorable lending practices, CUNA has said.