H.R. 3915 Mortgage Reform Bill Passes Committee with Important Changes

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

The Barney Frank-sponsored The Mortgage Reform and Anti-Predatory Lending Act of 2007 that would surely put a major dent in mortgage broker-originated lending passed the House of Representatives Financial Services Committee yesterday by a vote of 45 to 19. The bill now moves on to the House floor where it will be debated and voted on by the entire chamber. Pending a successful vote there it will go to the Senate and then to the President. Due to the fast-tracked nature of the bill it could be signed off by the President in a matter of weeks, not months.

While the bill passed some major changes were made to it to limit its scope in terms of new governance and regulation. Here is what did pass from the original proposal:

National licensing for all mortgage brokers and bank loan officers
National definition of what entails an ‘originator’ (who subsequently must be licensed)

What did not pass was the outlawing of yield spread premium. While this had a spin put on it that brokers didn’t want their paychecks taken away; it is clear with some simple math that by eliminating bank-paid compensation to mortgage brokers that the government would be mandating a reduction in home equity each time some chose to refinance. A stupid proposition if ever there was one.

Don’t get me wrong – I am for more transparency, more consumer advocacy, and an increased level of licensing and enforcement (of existing legislation); however, by mandating how consumers must conduct the transaction they were potentially making a limited set of options for folks that much more limiting.

So the YSP part stayed as the section relating to it Sec. 123 Anti-Steering was amended (h/t Raoul) to read:

Sec. 123. Anti-steering.

For loans that are not qualified mortgages (i.e., not prime loans), no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premium) that is based on or varies with the terms of such loans (other than amount of principal). The Federal banking agencies, in consultation with HUD and FTC, will jointly prescribe regulations to prohibit (1) mortgage originators from steering any consumer to a residential mortgage loan that the consumer lacks a reasonable ability to repay, that does not provide net tangible benefit, or that has predatory characteristics, (2) mortgage originators from steering any consumer from a qualified mortgage (prime loan) to a loan that is not a qualified mortgage, and (3) abusive or unfair lending practices that promote disparities among consumers of equal credit (4) worthiness but of different race, ethnicity or age. However, nothing in this subsection should be construed as limiting the ability of a mortgage originator to sell residential mortgage loans to subsequent purchasers, restricting a consumer?s ability to finance origination fees if they were disclosed to the consumer and do not vary with the consumer?s decision to finance such fees, or prohibiting incentive payments to a mortgage originator based on the number of loans originated.

So that part of the legislation seems to be removed. However, there can be amendments and changes throughout the process; so we’ll keep a close eye on any future developments as this bill makes its way through Congress.

Thoughts?