Washington DC -- The U.S. House of Representatives passed by a vote of 291 to 127 last Thursday the Mortgage Reform and Anti-Predatory Lending Act of 2007. The Act amends the Truth in Lending Act to set forth a duty of care standard for residential mortgage loan originations. It prohibits steering incentives to mortgage originators, including incentive compensation and any yield spread premium based on, or varying with, the terms of a residential mortgage loan.
The legislation directs the Secretary of Housing and Urban Development and other specified federal banking regulatory agencies to prescribe jointly regulations to prohibit mortgage originators from steering any consumer to a residential mortgage loan that is not in the consumer's interest. It sets forth licensing and registration requirements for mortgage originators and minimum repayment standards for residential mortgage loans while requiring creditors to determine, based on verified and documented information, that a consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance, and assessments.
The Act adds several layers of regulation including: (1) prohibiting creditors from extending credit for residential mortgage loans that involve refinancing of a prior residential mortgage loan unless the creditor determines that refinancing provides a net tangible benefit to the consumer; (2) making assignees and securitizers liable for certain violations in connection with residential mortgage loans and enumerating defenses to foreclosure; and requiring pre-loan counseling.
The Bill also proscribes certain practices, including: (1) certain prepayment penalties; (2) single premium credit insurance; (3) mandatory use of arbitration; and (4) negative amortization mortgages. It also redefines high-cost mortgages while prohibiting balloon payments for such mortgages and revises requirements governing prepayment penalties and prohibiting lending without due regard to repayment ability.
Certain creditor practices for high-cost mortgages are prohibited including: (1) recommending default on an existing loan or other debt before and in connection with closing of a high-cost mortgage that refinances all or any portion of such existing loan or debt; (2) imposing late fees except according to specified requirements; (3) exercising sole discretion to accelerate indebtedness; (4) financing points and fees; (4) structuring certain transactions and reciprocal arrangements to evade the requirements and prohibitions of this Act; and (5) charging certain modification or deferral fees, and fees for notification of payoff information.
Source: MultifamilyBiz.com