110th CONGRESS, LEGISLATIVE ISSUES A - Z

ISSUE: Congress has taken in keen interest in the housing market given the recent downturn in the industry. Home prices have fallen by 5% in many markets and are expected to eventually fall by at least 10%. Without legislative or industry action, as many as three million American mortgages loans are expected to default in the next two years. Two-thirds of these loans are expected to end up in foreclosure. As a result, Congress and the Administration have taken action and put forth proposals designed not only to mitigate the effects of the current crisis, but also to prevent future such events from occurring. Predatory lending practices in the subprime mortgage market are often blamed for the current crisis. A key distinction that must be made is that all lending to persons with subprime credit is not predatory in nature. For example, credit unions have a long and proud history of serving people of modest means. Often, these are the very people who have subprime credit and rely on lending products offered by credit unions. Credit union mortgage lending to members with subprime credit is not a significant contributor to the current woes in the housing sector of the economy. According to House Financial Services Committee Chairman Barney Frank (D-MA), “… reasonable regulation of mortgages by the bank and credit union regulators allowed the market to function in an efficient and constructive way, while mortgages made and sold in the unregulated sector led to the crisis.”

CUNA POSITION:CUNA condemns predatory home mortgage lending practices and supports the intent of H.R. 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007. However, CUNA believes that some of the provisions in the legislation are more appropriately tailored for the mortgage brokerage industry. CUNA is also concerned that the legislation will have unintended consequences, including additional paperwork burdens on financial institutions and drying up capital in the home mortgage market. CUNA’s concerns with the legislation can be found by viewing CUNA President and CEO Dan Mica’s letter to the House Financial Services Committee.

STATUS/OUTLOOK: On November 15, 2007, the House of Representatives passed H.R. 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007 by a vote of 291 to 127. This bipartisan legislation was introduced by Rep. Brad Miller (D-NC) and amends the Truth in Lending Act alter consumer mortgage lending practices. Some of the key provisions included in H.R. 3915 are as follows:

• Establishes a licensing and registration system for all mortgage originators (bank and credit union employees would be subject to registration only)
• Subjects all mortgage originators to federal "duty of care" requirements
• Sets minimum standards for mortgages such as ensuring that borrowers have a reasonable ability to repay and also that they receive net tangible benefits from loans
• Prohibits compensation for steering borrowers into subprime loans
• Expands the scope of consumer protections provided for "high-cost loans" under the Home Ownership Equity Protection Act (HOEPA) by lowering points, fees and interest rate triggers, prohibiting balloon payments, and requiring pre-loan counseling before a borrower may obtain a “high-cost loan”

In the Senate, Banking Committee Chairman Christopher Dodd (D-CT) has introduced legislation similar in intent to that of H.R. 3915. S. 2452, the Homeownership Preservation and Protection Act of 2007 would:

• Prohibit mortgage brokers from steering prime borrowers to more expensive subprime loansv
• Require lenders to determine a subprime borrower’s ability to repay a mortgage loan
• Prohibit prepayment penalties on subprime mortgages
• Prohibit Yield Spread Premiums (YSPs) on subprime mortgages
• Require a “net tangible benefit” to subprime borrowers
• Allow state attorneys general to enforce the consumer protection provisions of the law
• Require escrow accounts for taxes and insurance for subprime and nontraditional loans.

At the end of 2007, the Congress passed and the President signed into law an omnibus federal spending bill that provides $180 million to the Neighborhood Reinvestment Corporation, a national public/private neighborhood development venture, to assist homeowners faced with foreclosure.

CUNA’s analysis of other legislative and Administration proposals to mitigate the effects of the subprime mortgage crisis can be accessed by clicking on the following links:

• Federal Housing Administration (FHA) Reform
• Government Sponsored Enterprises (GSE) Reform
• Subprime Mortgage Lending Legislation
• Subprime Mortgage Bankruptcy Legislation
• Tax Exclusion Proposals for Cancelled Mortgage Debt Income

CUNA will continue to closely monitor subprime mortgage lending reform efforts in Congress.

CONTACT: John Hildreth, (202) 508-6724, jhildreth@cuna.coop
Michele Johnson, (202) 508-6718, mgjohnson@cuna.com
Phil Drager, (202) 508-6710, pdrager@cuna.com

Related Documents:

November 6, 2007: Letter to Financial Services Committee Chairman Barney Frank and Ranking Member Spencer Bachus Regarding Mortgage Reform and Anti-Predatory Lending

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