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House mortgage reforms would limit abusive lending
WASHINGTON (5/8/09)—The U.S. House of Representatives on Thursday voted 300-114 to approve H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act. A goal of the legislation, sponsored by Rep. Brad Miller (D-N.C.), is to persuade lenders to abandon more complex loan structures by returning to mortgages with simple fixed rates and adequate documentation. Creditors would be required to retain at least 5% of the balance of a mortgage loan that isn't a "qualified mortgage," a term defined to exclude loans with negative amortization, that aren't fully amortized and have balloon payments, that exceed certain interest rates, that have monthly payments that exceed a certain percentage of the borrower's monthly income (as determined by regulation), or that exceed 30 years. However, regulators would be able to adjust any of these restrictions if consistent with the intent of the law. Federal credit unions, which have authority to make loans for 40 years, would likely choose to seek relief from the 30-year restriction. The bill also looks to ban yield-spread premiums and other compensation structures that may be abused by loan originators, and, more generally, would force loan originators to disclose how they are compensated to homebuyers. House members also agreed to amendments that would standardize mortgage forms and strengthen rules regarding income verification for potential borrowers. The bill would also suspend revised Real Estate Settlement Procedures Act (RESPA) rules, scheduled to go into effect Jan. 1, 2010. Instead, if the bill is enacted into law, HUD and the Fed must within six months jointly issue proposed rules for providing compatible disclosures for borrowers to receive at the time of mortgage application and at the time of closing. Rep. Barney Frank (D-Mass.) promised to clarify portions of the bill, saying that he and others would work to better “spell out what is permitted” before the bill can be put into law. A number of representatives agreed that work should also be done to clarify any potential jurisdictional misunderstandings between federal and state authorities. The Credit Union National Association (CUNA) has previously said that while it supports the bill's intent, lawmakers should resist pressing for additional laws before assessing the effectiveness of a series of regulatory actions currently underway to address mortgage lending problems and concerns. There is no comparable bill in the Senate at this time. CUNA will be closely monitoring developments in the Senate in order to give credit unions some guidance this summer on the impact on their RESPA compliance programs.


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