By Gerri Elder
Congress is cracking down on predatory lenders across the country.
The Mortgage Reform and Anti-Predatory Lending Act of 2009 was introduced by Rep. Brad Miller (D-NC), Rep. Mel Watt (D-NC) and House Financial Services Committee Chairman Barney Frank. The Act is geared to slowing down the predatory lenders who are largely to blame for the nationwide foreclosure crisis.
Rep. Miller previously sponsored a bill that would have toughened up mortgage regulations in order to thwart another subprime mortgage meltdown. The bill passed the House in 2007 with bipartisan support, but never got a vote in the Senate. The current bill is a revision of that legislation, and this time around Miller added teeth.
If passed, this legislation would prohibit lenders from underwriting loans for borrowers who are obviously unable to repay them. The bill includes language to encourage the mortgage industry to make 30-year fixed-rate, fully documented loans the standard.
The Mortgage Reform and Anti-Predatory Lending Act of 2009 toughens up on the restrictions on compensation received by mortgage loan originators and brokers. This compensation is generally called "yield-spread premiums" and is based on the terms and interest rate of a loan.
Mortgage banks sometimes pay the brokers extra for closing a deal at a higher interest rate than the borrower could have qualified for or gotten elsewhere. Rep. Miller says this practice is an "indefensible conflict of interest."
The new bill also takes a stronger stance on assignee liability and includes a provision that would assign more liability to mortgage securitizers for fraudulent loans.
The bill provides protection for homeowners from predatory lending practices by prohibiting refinance loans that do not provide a tangible benefit and also by making the mortgage industry more transparent.
Miller modeled the act after the predatory lending statute in North Carolina. The North Carolina law is considered the model state statute for stopping predatory lending practices, while still allowing consumers to freely access credit. The goal is to stop foreclosure before it starts.
The Center for Responsible Lending estimates 2.4 million Americans are at risk of foreclosure in 2009. If nothing is done to improve the situation, the statistics project 8.1 million foreclosures over the next four years.
Predatory lending practices during the housing market boom contributed to the foreclosure rate surging to the highest point in 25 years. The foreclosure crisis has been a major factor in the economic recession. Miller and the co-sponsors of the act are working to get something done now to prevent a disaster like this from ever happening again.