FOR IMMEDIATE RELEASE  
Oct. 16, 2007 
Contact: Abigail McDonough
202-225-6511                       

  KANJORSKI INTRODUCES ESCROW, APPRAISAL, AND MORTGAGE SERVICING IMPROVEMENTS ACT
Comprehensive Bill to Improve Consumer Protection Enhances Mortgage Servicing Standards and Appraiser Independence 

WASHINGTON - Congressman Paul E. Kanjorski (D-PA), the chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, today introduced H.R. 3837, the Escrow, Appraisal, and Mortgage Servicing Improvements Act.  The bill responds to growing complaints of abusive and deceptive practices related to mortgage servicing and appraisals, especially in the subprime mortgage market.  Congressman Barney Frank (D-MA), Chairman of the House Financial Services Committee, joined as an original co-sponsor of the bill.
"This bill offers a comprehensive, balanced, and progressive set of solutions to solve a number of perplexing policy issues.  It helps protect consumers by improving mortgage servicing, enhancing appraisal quality and standards, ensuring better appraisal oversight, and requiring escrows for those mortgages where borrowers are more likely to experience difficulty in budgeting for the often substantial costs of taxes and insurance," stated Congressman Kanjorski.  "We need to reform the mortgage lending and servicing process.  The bill's reforms are part of a complete solution to abusive lending."

Congressman Kanjorski first became interested in these issues because of problems of excessive foreclosures in Monroe County, Pennsylvania that resulted from unaffordable mortgages, appraisal inflation, poor servicing, and fraudulent actions, among others.  During the last six years, he has worked to convene hearings on these issues, investigate solutions to these problems, and develop legislation and amendments to address these matters.  Today, the problems of subprime lending are much more evident throughout the national marketplace, and the need to enact legislation to improve lending in this sector is even greater.  The bill builds on a legislative proposal previously developed by the Congressman.

"I commend Congressman Kanjorski for introducing the Escrow, Appraisal, and Mortgage Servicing Improvements Act, which focuses much needed attention on the role that loan servicers and appraisers have played in the subprime foreclosure crisis.  Requiring lenders to escrow for taxes and insurance on subprime mortgages is an essential step to preventing families from unfairly losing their homes," said Michael D. Calhoun, President, Center for Responsible Lending.  The nonprofit, nonpartisan research and policy organization is a national leader in legislative efforts to eliminate abusive financial practices.

In addition to consumer groups, Congressman Kanjorski expects the bill to garner the support of appraisers, real estate professionals, and responsible mortgage originators.

H.R. 3837 targets abusive lending practices by incorporating such elements as:

Mortgage Servicing Reforms
Subprime borrowers are significantly less likely than prime borrowers to have escrow accounts, despite the fact that subprime borrowers are more likely to require budgeting assistance due to their weaker credit histories.  As a result, the bill requires certain borrowers to have escrow or impound accounts established in conjunction with their mortgages to provide protection against tax liens, the forced-placement of insurance, and unanticipated taxes and insurance premiums.  In addition, lenders must provide written disclosures about the need to pay taxes and insurance premiums to all borrowers if they opt out of creating escrow accounts.

The bill also updates the Real Estate Settlement Procedures Act (RESPA) to create new consumer protections for mortgage servicing, such as detailing when the servicer can impose force-placed insurance, mandating swifter responses to consumer written inquiries, increasing penalties for abuses, and requiring the prompt crediting of payments.

To ensure that lenders alert borrowers to all costs involved in a transaction, the bill requires the inclusion of escrow payments for taxes and insurance in any repayment analysis provided to consumers at the time of a quote on a mortgage.
 
Appraisal Improvements
The legislation prohibits the lender from making a high-cost mortgage without first obtaining a written appraisal of the physical property.  The bill also protects these consumers against loan flipping by requiring a second written appraisal, free of charge, if another loan on the property occurred in the past six months.  Lenders must also provide borrowers with one free copy of each appraisal at least three days before the closing date on the property.

To ensure that appraisers remain independent from the transaction and verify the true value of the property for the buyer, seller, lender, and investor, the bill creates Federal appraisal independence standards within the Truth in Lending Act (TILA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).  These standards prohibit the parties involved in a real estate transaction from influencing the independent judgment of an appraiser through collusion, coercion, and instruction, among other activities.  They also require appraisers to have no direct or indirect interest in the property or transaction involving the appraisal.  The bill additionally establishes tough penalties for failures to maintain this needed independence.

The bill also updates Title XI of FIRREA to enhance accountability of the Appraisal Subcommittee, improve Federal oversight of appraisals, and better protect mortgage borrowers.  The Appraisal Subcommittee is housed within the Financial Institutions Examination Council and consists of representatives from the Federal financial regulators.  The bill's changes will provide the Appraisal Subcommittee with a consumer protection mandate and more authority to monitor the performance of State appraisal agencies.  The Subcommittee is also required to describe its activities in detail in its annual report to Congress.  Many changes are also designed to strengthen appraiser licensing and education standards.

Lastly, the bill's amendments to TILA will allow consumers to obtain copies of all appraisal valuation reports at least three days before the closing of transactions.  This requirement will help to ensure that borrowers know if an appraiser calculates a different value than the one used to justify the transaction which could help them avoid incidents of relying on faulty appraisals that overvalue the underlying property.

In the coming weeks, Congressman Kanjorski, who is the second most senior Member of the House Financial Services Committee, will work with his colleagues on the Committee to incorporate the escrow, appraisal, and mortgage servicing reforms provided in H.R. 3837 into a comprehensive legislative package designed to combat abusive and deceptive lending practices in the subprime marketplace.  In addition to Chairman Frank, Congressmen Charles Wilson (D-OH) and Paul Hodes (D-NH) helped to introduce the bill.  The House Financial Services Committee is expected to consider this legislation in the near future.