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H.R 3915 Passes

Posted on November 16, 2007 by Ray Williams (NMLS #216267).

This article by Jesse Holland provides a great update of the current situation…

House bill would toughen lending rules

WASHINGTON —- With home foreclosures skyrocketing, the House on Thursday voted to crack down on mortgage lenders by forcing them to get licenses, making them responsible for discovering whether borrowers can really repay and fining them for steering people toward risky subprime loans.

The measures are designed to keep more people from sinking into the current mortgage crisis, where prospective homeowners with shaky credit got mortgages with low interest rates only to see the rates rise and bring monthly mortgages up to prices they cannot afford.

More than 2 million adjustable-rate mortgages are scheduled to reset by the end of 2008.

Many American homeowners are expected to go spiraling into debt, with the number of homes involved in foreclosure proceedings nationwide almost doubling in the third quarter of this year when compared with 2006, according to RealtyTrac Inc.

“What we have today is a bill that cannot undo what happened, but makes it much less likely it will happen in the future,” said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

But Republicans and the White House warned that congressional meddling with mortgage markets could make things even worse. Many Republicans argued that the bill would make it harder for borrowers to refinance loans due to reset at higher interest rates, and make it almost impossible for poor people to get loans to buy a house.

“Congress does two things very well: One is nothing, and two is overreact,” said Rep. Tom Price, R-Ga. “While we have had a period here where some credit, some loans were unwisely given, but allowing individuals, allowing Americans to purchase homes and realize their American dream is a good thing.”

But Democrats said the subprime market needs to change to ensure that people get loans that are beneficial to them, not just good for the bottom line of some corporation. “This bill is not designed to harm the subprime market, it’s designed to reform and correct it and make it work properly,” said Rep. Keith Ellison, D-Minn.

The White House did not threaten to veto the bill. “But the administration has concerns with the bill as drafted because it includes provisions that unduly restrict access to credit for potential home buyers and reduce refinancing opportunities for current homeowners,” the administration said in a statement.

The bill, H.R. 3915, passed 291-127. It now goes to the Senate, where a similar bill has been stalled for weeks.

Included in the legislation are provisions that would:

– Ban lenders from making loans that borrowers don’t have the ability to repay;

– Prohibit lenders from steering homeowners into refinanced mortgages that don’t provide any benefit and create fines of triple the broker fee and costs;

– Make Wall Street banks that package mortgage securities into investments liable for violations of lending laws;

– Prohibit excessive fees for payoff information or late payments, the financing of points and fees and practices that increase the risk of foreclosure such as balloon payments and encouraging borrowers to default; and

– Create a nationwide licensing system for mortgage brokers and bank loan officers called the Nationwide Mortgage Licensing System and Registry.

Democrats and Republicans agreed that the final product pleased no one.

But “we need not let the perfect get in the way of the good,” said Rep. Spencer Bachus, R-Ala. Rep. Mel Watt, D-N.C., added, “Maybe the best tribute to all of us is that we have a bill that no one is completely comfortable with.”

Republicans were particular perturbed with the idea that lenders are responsible for knowing whether borrowers can actually pay back their loans. “This kind of murky language would invite litigation from every borrower who misses a payment,” said Rep. Ed Royce, R-Calif.

Also, the House has provided $200 million for foreclosure prevention counseling in the Transportation, Housing and Urban Development Appropriations conference report. The Senate must now approve the conference report.

The money will be used by nonprofit foreclosure prevention programs to counsel those who may lose their homes because of risky subprime loans.

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