Bipartisan Mortgage Reform Legislation Will Help Prevent Lending Abuses

WASHINGTON - Yesterday, Congressman Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, received unanimous approval to incorporate his bipartisan H.R. 3837, the Escrow, Appraisal, and Mortgage Servicing Improvements Act, as an amendment into H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007.  H.R. 3915 was then adopted in the House by a vote of 291 to 127.  

"The current mortgage system does not effectively protect borrowers from the many abuses that can occur in our complex mortgage system," stated Chairman Kanjorski.  "I personally saw the effects of these practices on many homeowners in Northeastern Pennsylvania, and unfortunately, the detrimental problems of abusive and deceptive lending are currently affecting homeowners in Pennsylvania and across the country in large numbers.  For most people, buying a home is the largest and most complex transaction they will ever undertake.  My legislation will help make sure homebuyers are paying a fair price for their homes at a cost they can afford."

"...[This legislation] will improve the integrity of the appraisal process, and requires that subprime mortgages have escrow accounts for taxes and insurance at the time the loan is consummated. These are issues that the gentleman from Pennsylvania [Congressman Kanjorski] has worked on for many years, and he deserves credit for producing legislation that will improve many key aspects of the mortgage origination and servicing process," said Congressman Spencer Bachus (R-AL), the leading Republican on the House Financial Services Committee.

"This is a common sense amendment that will help consumers responsibly budget for taxes and homeowners insurance," said Congresswoman Shelley Moore Capito (R-WV). "By implementing strong Federal appraisal standards it will also curb fraudulent appraisals that hurt homeowners and seriously jeopardize investment."

"Mr. Kanjorski's leadership on this issue is to be commended," said Congresswoman Deborah Pryce (R-OH).  "His bill enhances protections for consumers by restricting the shameful practice of granting loans without escrows to those borrowers who are most likely to need them."

"Working together, we have crafted a strong, bipartisan amendment that will shine a light on deceptive and abusive practices," said Congresswoman Judy Biggert (R-IL), Ranking Member of the Financial Institutions and Consumer Credit Subcommittee.  "It has been a pleasure teaming up with Congressman Kanjorski on this effort, and I look forward to continuing our work on common-sense legislation to further increase transparency in the mortgage market."

Congressman Kanjorski's legislation offers a comprehensive, balanced, and progressive set of solutions to combat abusive and deceptive mortgage lending practices that occurred in Monroe County at the beginning of the decade and which are currently impacting the subprime mortgage crisis nationwide.  Many of those homeowners, especially those with subprime mortgages, experienced problems with inflated appraisals and mortgage servicing.  As a result of these abuses, the number of foreclosures in Monroe County increased by 700% in just twelve years.  The subprime marketplace allows borrowers with less-than-perfect credit to purchase homes and establish better credit reports, but it also increases the likelihood of encountering mortgage originator abuse.  

Now, the problems of abusive lending practices on subprime borrowers in the current mortgage marketplace are deeply affecting homeowners and the economy.  In Pennsylvania, there were 145,457 subprime loans issued from 2005-2006.  The Center for Responsible Lending projects that of these loans 17.2% will be subject to foreclosure, resulting in 25,035 foreclosures in Pennsylvania just on subprime loans.    In addition to having detrimental consequences for these families, the foreclosures reduce the values of neighboring homes.

Through his legislation, Chairman Kanjorski aims to rectify many of the root causes of these problems by improving mortgage servicing, enforcing better escrow practices, and enhancing appraiser oversight to prevent further homeownership problems from occurring in Pennsylvania and elsewhere in the country.  

First, the bill would require lenders to establish escrow accounts on many subprime mortgages to help protect financially stressed borrowers from tax liens and costly hazard insurance placed by the lender.  According to the Center for Responsible Lending, 75 percent of subprime mortgages lack escrows, potentially setting up the borrower for problems with paying these fees.  Under this amendment, lenders must also disclose potential tax and insurance premium obligations in the mortgage quotes to inform borrowers of all predictable financial obligations involved in owning a home.
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Second, the bill creates many protections dealing with mortgage servicing including mandating swifter response times to borrower inquiries.  This practice would help homeowners to receive expedited assistance from their mortgage servicers when difficulties arise.  The bill would also increase penalties for mortgage servicers who do not abide by these terms in order to prevent more abuses.

Third, the bill includes provisions to ensure the independence of appraisals.  According to a recent study, 90 percent of appraisers reported feeling pressure to inflate property values.   The passed amendment would prevent these activities from occurring by prohibiting all parties involved in a real estate transaction from pressuring an appraiser through collusion and coercion among other actions, thereby maintaining appraisal independence.  

H.R. 3915 will address the underlying problems in the current market, where dishonest lenders have been able to lend to consumers and sell those mortgages through Wall Street to investors without ever having to demonstrate that consumers have the ability to repay those loans.

Chairman Kanjorski, who is the second most senior Member of the House Financial Services Committee, received approval of this bill from the Financial Services Committee by a voice vote on November 7.  The bill will now go to the Senate for approval.   

 

1 "Subprime Spillover: Foreclosures Cost Neighbors $223 Billion; 44.5 Million Homes Lose $5,000 on Average", Center for Responsible Lending, November 13, 2007

2 "National Appraisal Survey", October Research Corporation, December 2006, www.octoberresearch.com