In response to financial market disarray and dire straits for many homeowners caused by the structured mortgage securitization frenzy of the past several years, Congressional Representatives Barney Frank (D-Massachusetts), Brad Miller (D-North Carolina), and Mel Watt (D-North Carolina) introduced legislation on October 22 which would protect borrowers from predatory mortgage lending practices, and reform the mortgage origination and securitization process. According to Rep. Miller in the announcement: “Barney Frank, Mel Watt and I see protecting vulnerable homeowners from predatory mortgage lenders as a core, defining Democratic value. When a family’s home is a stake, lenders had better play by a fair set of rules.”
The Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915), proposes “licensing and registration of mortgage originators,” and “a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay.” The Bill also provides borrowers with legal recourse against “secondary market securitizers who package and sell interest in home mortgage loans outside of these standards,” but the Bill also proposes investor protections, stating, “individual investors in these securities would not be liable.” In other words, because in recent years securitized loans often didn’t end up staying in the hands of either the originating lender or the firm that structured or packaged these loans to be sold to other investors, a situation developed where there was a lot of money to be made by originating and packaging the loans but little incentive to be sure the loans had a shot at actually being repaid because they ended up outside the portfolios of the originator and securitizer. Now, the onus would be on the lender and securitizer to make sure these loans are viable. Borrowers would have legal remedies if new loans were made outside of the proposed minimum standards.
The Bill increases “consumer protections for ‘high-cost loans’ under the Home Ownership and Equity Protection Act,” and outlines provisions for renters of homes that are in foreclosure, where existing leases must be honored and tenants that don’t have a lease would be given a minimum of 90 days notice before they would have to move.
What’s next for H.R. 3915? There will be “a hearing tomorrow [October 24] at 10 a.m.,” then a markup of the Bill, back to the Committee, and after that House leadership could schedule a vote, Heather Wong, press secretary to the Committee on Financial Services told IA by telephone.