Mortgage Daily

Published On: November 7, 2007
HR 3915 Approved by CommitteeFull House likely to vote soon

November 7, 2007 (revised Nov. 8)


HR 3915 advanced through the House Committee on Financial Services. The proposed legislation would limit yield spread premiums and push more loans into the burdensome, high cost category.

Mortgage servicers as well as mortgage originators would be impacted by new and broader regulations under HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007, which was approved Tuesday.

The 66-page act, approved by a 45-19 vote, now goes to the full House, where it is expected to be brought up for consideration next week, committee spokeswoman Heather Long told

The bill has many provisions that have been opposed by the Mortgage Bankers Association, the National Association of Mortgage Brokers, the Consumer Mortgage Coalition and others in the mortgage industry.

It bans yield spread premiums and other “incentive compensation” that are based on or vary with the terms of any residential loan.

The bill states that borrowers must have the ability to pay all taxes, insurance and assessments as well as repay the loan and any other loan they may have on the property. And it requires that ability pay down the principal be considered when originating interest-only loans and loans with possible negative amortization. For adjustable-rate mortgages, prepayment penalties are prohibited during the three-month period before an interest rate reset date.

HR 3915, which consists of a series of amendments to the Truth in Lending Act, also requires the licensing of mortgage-related companies and mortgage originators by states or by “a qualified nationwide registration regime,” and it gives borrowers, when faced with possible foreclosure, the right of rescission of their loans when those loans violate the act’s provisions.

In its definition of high-cost mortgages under the Home Owners Equity Protection Act, open end lines-of-credit are included while the points and fee triggers are lowered to 5 percent from 8 percent for most loans. Loans with prepayment penalties that exceed 2 percent or 30 months duration will also be defined as HOEPA loans. And it places further restrictions on prepayment penalties and balloon payments for high cost loans.

Violations are subject to a penalty equal to as much as three times an originator’s direct and indirect compensation.

Loan securitizers also are covered by the measure, which makes them liable for any violations unless they have exercised due diligence when acquiring the loans or have cured the violations within 90 days of notification.

Depository institutions and their affiliates are exempt from some of the act’s provisions.

MBA Chairman Kieran P. Quinn says his trade group does not support the bill because it “does not provide broad national uniformity in the fight against predatory lending.” Similar opposition over the issue of limited federal preemption has been expressed by the CMC.

CMC and MBA also have opposed provisions that would lower HOEPA triggers, thus making more loans, in CMC’s words, “unsaleable HOEPA loans,” and, in MBA’s words, “eliminate certain good products from the mortgage market.”

HR 3915 refers to its target in general terms only as “mortgage originators,” and this “undifferentiated treatment” has drawn criticism from CMC. “We believe the relationship of a lender to a borrower and its attendant duties are much different than those of a mortgage broker,” CMC Executive Director Anne C. Canfield stated in a Nov. 5 letter to Financial Services Committee Chairman Barney Frank and Ranking Member Spencer Bachus.

But this is not a view shared by NAMB, whose executive vice president, Roy DeLoach, praised the bill to because “the terms are originator neutral and all distribution channels are treated fairly. You have to give Chairman Frank credit for taking an all-originator approach.”

He also praised the bill’s requirement of a national registry of all individual mortgage originators. NAMB has been a frequent critic of much legislation for singling out brokers.

But NAMB, he said, has mixed feelings about the bill as it relates to borrowers.

“The good news is that consumers will be protected with a national registry. And there’s clear disclosures for consumers coming out of this bill and that we support,” DeLoach noted. “But we have concern about how many consumers will not be able to achieve home ownership because of the restrictions in the bill. And we have a concern of the impact that can have on the general mortgage market.”

NAMB, he said, is still working with Frank to “clarify a few areas of the bill. Our focal point is to try to make changes that will increase the number of people able to still get a house.”

An anti-HR 3915 petition being circulated by a Mark D. Spencer, who an NAMB spokeswoman said may be a broker acting on his own, expresses opposition to the bill on the grounds “it is burdensome to the independent mortgage broker, anti-competitive, and in the name of consumer protection, it will actually harm consumers. In an already tough lending and real estate environment, this bill will put additional unneeded pressure on real estate prices and cause unforeseen harm to homeowners, mortgage professionals and real estate professionals everywhere. It will also limit the choices consumers have in finding a residential mortgage loan to strictly large financial institutions.”

The petition has reportedly garnered some 107,000 signatures as of Wednesday.

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