The House Financial Services Committee held its final hearing Thursday on mortgage reform. The committee plans to vote on the bill next week and send it to the full House for approval soon after. Committee leaders say the legislation is needed to prevent those practices that led to the nation's mortgage meltdown and financial crisis from being repeated.
Under ""H.R. 1728"":http://www.house.gov/apps/list/press/financialsvcs_dem/summary_of_hr_1728_--_03_26_09.pdf, the Mortgage Reform and Anti-Predatory Lending Act, lenders will be more financially liable for the loans they make. They would be prohibited from underwriting loans that borrowers can not reasonably repay and would be required to provide better, clearer disclosures of mortgage loan terms.
The bill would also impose restrictions on compensation paid to mortgage loan originators and brokers based on a loan's interest rate and terms, often called yield-spread premiums. And it would make mortgage investors and those who package home loans into securities, more liable for fraud.
Ultimately, the legislation encourages the market to move toward what was once the norm in mortgage lending - 30-year fixed-rate, fully documented loans.
David Kittle, chairman of the Mortgage Bankers Association (MBA), was one of the industry representatives to ""testify at the House hearing"":http://www.mortgagebankers.org/files/News/InternalResource/68620_FullTestimony.pdf. He applauded the bill's comprehensive nature, but expressed reservations that the new regulations might kill competition within the housing markets. According to Kittle, the added risk applied by the legislation's language would make it especially difficult for non-depository lenders to compete because they typically do not have significant cash on hand and instead rely on warehouse lines of credit. Kittle says this would narrow borrowers' choices, diminish credit, and significantly increase borrowing costs.
He also voiced concern that H.R. 1728 does not establish a national standard for mortgage lending to replace what he called an ""uneven patchwork"" of state and local lending laws.
Kittle told lawmakers, ""If carefully crafted, improved regulation is the best path to restoring investor and consumer confidence in the nation's housing marke. At the same time, if regulatory schemes are not well conceived, they risk worsening a credit crisis that trillions of taxpayer dollars have yet to resolve.""
The Senate is also looking at a mortgage reform bill that would apply bank fraud statutes to independent mortgage companies and mortgage brokers, for the first time. And ""earlier this week"":http://dsnews.comindex.php/home/news_story/2872, Sen. Charles E. Schumer (D-New York) introduced separate legislation that would also address mortgage fraud by providing local prosecutors with federal funding to beef up their resources and manpower for fighting housing scams.