The U.S. House of Representatives passed the Mortgage Reform and Anti-Predatory Lending Act (H.R. 1728) on Thursday, by a vote of 300 to 114. Lawmakers say the legislation is intended to protect homeowners and the nation's economy from the questionable and predatory lending practices that have led to record home foreclosures and triggered the worst financial crisis since the Great Depression.
House Speaker Nancy Pelosi said, ""The simple fact is that our laws and enforcement efforts did not keep pace with the complexities of a global economy and a financial industry where the greed of some trumped common sense. Insisting on responsible borrowing and lending and ensuring that borrowers enter into mortgages they can repay or refinance will help families protect their most valuable asset -- their home -- and guard against another financial and housing market meltdown.""
The House bill is an overarching measure that covers all loans in the mortgage market. It establishes rules to ensure a lender only makes loans that borrowers have the means to repay, prohibits payments to brokers based on rates and loan terms (yield-spread premiums), and provides incentives to encourage lenders to originate safe and sustainable mortgage products. It also bans all prepayment penalties on adjustable rate mortgages (ARMs) and establishes special rules for extremely high-cost mortgages.
For the first time, the bill would also hold the secondary mortgage market responsible for complying with these same standards when packaging loans into securities. The goal is to ultimately move the market back toward what was once the norm in mortgage lending - 30-year fixed-rate, fully documented loans.
According to Rep. Chellie Pingree of Maine, ""The message is simple. Lenders can't give loans to people who can't afford them. And borrowers have to tell the truth about their finances when they apply for a loan.""
In addition, the legislation includes strong foreclosure protections for renters and funds legal aid to help homeowners who receive unsustainable loans that do not comply with the new laws. It also addresses improvements in housing counseling, loan servicing, and the appraisal process.
There is currently no counterpart predatory lending legislation before the Senate.