(Washington D.C.)- The U.S. House of Representatives today voted 291-127 in favor of H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act, bipartisan legislation aimed at protecting homebuyers from predatory lending that has led to the recent mortgage crisis across the country. 

“We cannot ignore skyrocketing foreclosure rates in Michigan and across the nation,” said Congressman Sander Levin.  “Adjustable Rate Mortgages, ballooning repayment schemes and abandonment of reasonable qualifying standards for mortgage applicants has led to an unacceptable number of families losing their homes.  This crisis threatens the ability of middle class families to afford the American Dream of homeownership.”

The legislation is especially critical to Michigan, which the Detroit Free Press reported was fourth in the nation in foreclosures in September and saw foreclosure rates rise 82% from September 2006.  According to the Free Press, Wayne County had the fifth highest foreclosure-filing rate among metropolitan areas in the U.S., while Oakland County's filings were up 153%.

And the problem could get worse before it gets better.  A Government Accountability Office report published last month found that rates of default and foreclosure are likely to increase through the end of 2007 and into 2008.  The GAO report indicated that irresponsible, “aggressive lending practices,” such as “mortgages with higher loan-to-value ratios (the amount of the loan divided by the value of the home), adjustable interest rates, limited or no documentation of borrower income or assets, and deferred payment of principal or interest” are behind the increases in default and foreclosure rates.  This bill seeks to address these practices and protect consumers by preventing these reckless loans from being made in the first place.

H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007:

Requires lenders to ensure a borrower's ability to repay.  The bill establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold.  Lenders would have to determine that a borrower has a "reasonable ability to repay," based on income, credit history, indebtedness and other factors.  For refinancing, the bill will require that all loans provide a net tangible benefit to the consumer, barring “junk” lending driven by fees rather than solid economics. Some lending had gotten away from these commonsense basics during the real estate boom, giving rise to risky, exotic mortgages and practices such as "no doc" loans. 

Prohibits certain unfair lending practices.  The bill prohibits financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as "yield spread premiums" that lenders pay to brokers to inflate the cost of loans. Statistics have shown that many homeowners in the current mortgage crisis received more expensive loans than they qualified for.  The bill limits the prepayment penalties charged to borrowers who wish to close out their loans, typically to refinance on more affordable terms.

Requires licensing and registration for brokers and bank loan officers.  The bill provides for licensing and registration of individual mortgage brokers and registration of bank employees that originate mortgages, as well as the establishment of a Nationwide Mortgage Licensing System and Registry (NMLSR). Applicants for State license and registration must furnish information, including fingerprints and personal history and experience and meet minimum standards including pre-licensing education and written tests.  This will protect borrowers from unscrupulous lenders who hop from state to state, and impose accountability on brokers and other non-bank lenders that proliferated during the housing boom and made the bulk of subprime loans. 

Requires additional disclosures for consumers regarding mortgage loans.  Under the bill, the lender must disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes. Lenders must also disclose the total amount of settlement charges, the amount of charges included in the mortgage, the amount the consumer must pay at closing, and the fees paid to a mortgage originator.  Many homebuyers did not understand the terms of their mortgages, especially when taking out subprime loans, and these disclosures will give consumers the information they need to make educated choices. 

Establishes federal minimum requirements while enabling states to impose tougher rules. Federal rule-making and enforcement duties would go to Federal agencies such as the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Trade Commission.  The bill’s provisions (except for those specifically affecting secondary market liability as set forth narrowly in the bill) will set a floor so that all Americans are protected, but allow states to enact tougher standards. 

Brings accountability to the secondary market for home loans.  Under the bill, participants in the huge secondary mortgage market would for the first time under federal law be liable for ensuring responsible lending. The bill permits consumers to obtain redress directly from firms involved in "securitizing" mortgages, unless the securitizer or assignee has policies in place to only buy the safest (e.g., “prime”) loans, has exercised due diligence in determining that the loan meet federal minimum standards (reasonable ability to repay and net tangible benefits) and has a warranty from the seller of the loans   In recent years, home loans increasingly were sliced and diced by firms that bundle and resell mortgages to investors, making it difficult to track who was ultimately responsible for ensuring the soundness of loans.

Stronger consumer protections for high-cost mortgages.  The bill expands the protections available under federal rules on high-cost loans -- lowering the interest rate and the points and fee triggers that define high cost loans.  The bill further enhances consumer protections for “high-cost loans” by:

• prohibiting practices that increase the risk of foreclosure, such as balloon payments, encouraging a borrower to default, and call provisions,
• prohibiting excessive fees for payoff information, modifications, or late payments,
• prohibiting the financing of points and fees, and
• requiring more pre-loan counseling.

Creates the Office of Housing Counseling.  The bill establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling.  The Office will certify computer programs for consumers to use in evaluating different residential mortgage loan proposals, and spearhead other efforts to broaden the reach of homeownership counseling.

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