The House Financial Services Committee passed November 15 its somewhat controversial Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915), which seeks to combat predatory lending practices.
Rep. Spencer Bachus (R-Alabama), ranking member of the committee who co-sponsored the bill, stated in announcing the bill’s passage, that the bill “will achieve two very important goals: implementing reforms that will help protect consumers from predatory lending practices, and preserving working Americans’ access to consumer credit.” While the large majority of subprime borrowers continue to make their payments, upwards of 20% are now in default or delinquency, or entering foreclosure, Bachus said. “Many believe that faulty mortgage lending practices have precipitated the recent credit crisis, and that the situation will get worse before it gets better,” he said. “For this reason, I believe a legislative remedy is not only appropriate, but our duty as members of Congress.”
But Marc Lackritz, president and CEO of SIFMA, says the bill “could severely restrict home loans for a segment of consumers striving to reach the American dream of home ownership. Firms may choose to abandon the market for making loans to individuals with less than perfect credit–an end result that would restrict credit to the very borrowers this legislation aims to help.” He continued: “It’s regrettable that such a well-intentioned bill, if made law, could have the adverse effect of constraining the mortgage credit market, making it harder for families to own their own home.”
As a result of bipartisan negotiations, H.R. 3915 was amended during the Committee markup in order to address concerns raised by Republicans. As a result, the final version of the bill contains a number of important provisions, including:
- Licensing and regulation provisions that will target the abusive practices, which brought in this crisis and encourage greater professionalism and accountability within the industry. These provisions are modeled after language included in H.R. 3012, a Republican subprime lending bill introduced by Rep. Bachus and other Committee Republicans in July.
- Provisions to improve the integrity of the appraisal process, and require that subprime mortgages have escrow accounts for taxes and insurance at the time the loan is consummated. These provisions are also similar to proposals included in the Bachus bill.
- A requirement that mortgage originators determine if a borrower has a reasonable ability to repay a loan before extending credit. This common-sense standard will discourage lenders from making bad loans without reducing the availability of mortgages to creditworthy borrowers.
- Safeguards that will help prevent litigation abuse. The amended bill restricts the availability of damages, reduces the duration of statutes of limitations, and expressly prohibits class action lawsuits.
- A proposal originally authored by Rep. Judy Biggert (R-Illinois), Ranking Member of the Financial Institutions Subcommittee, to improve housing counseling for consumers.