Mortgage Industry Dodges Bullet with the Passage of House Bill HR-3915

House Bill HR-3915 Passes, Now Heads to Senate

Well, after a few agonizing days, and a relentless email campaign by many in our industry, the House of Representatives finally passed the new Mortgage Reform and Anti-Predatory Lending Act of 2007 (HR-3915) on Thursday. Thankfully, the final Bill was amended to remove the controversial ban on the use of yield spread premiums, which would have crippled the mortgage lending industry; and, in turn, further promoted the current housing slump by raising interest rate costs to anyone looking to finance a new mortgage loan.

 While we agree that some of new Bill's proposed changes will be good for our industry as a whole, we totally disagree that Congress should be in the business of trying to legislate good behavior. Whenever they take that approach, all we usually get is a convoluted and disorganized mess. Originally, that would have been the case with this Bill, had it not been amended right before the final vote.

Some highlights of the new Act include:

• creates a new national mortgage lending registry that prohibits a mortgage originator from moving state to state, or company to company, after breaking one state's lending laws.
• strengthens restrictions on prepayment penalties, extending them to prime, as well as subprime, loans.
• expands borrowers' legal recourse against unsavory lending practices.
• allows damages for steering consumers into high-cost loans to be three times the fees earned by the originator.
• makes Wall Street banks that package mortgage securities into investments liable for violations of lending laws.
• creates limited "assignee liability" for companies that securitize loans, but prohibits class-action lawsuits by borrowers. The bill would also preempt states from passing laws that would give borrowers additional rights to sue loan securitizers and other assignees.
• requires escrow accounts on high-cost loans to cover property tax and insurance payments.
• requires that the amount of compensation paid to the loan originator "cannot" vary based on (loan) terms.

The question now is what changes the Senate will require and whether the President will sign the new bill if it ever gets to his desk. Our belief is there will be further amendments for sure. Hopefully, they'll be ones that will help protect consumers, and make sense for the mortgage industry at the same time.

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