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Housing

Housing

Congress has a responsibility to stop Predatory Lending.
 
One of my highest priorities since coming to Congress has been stopping predatory lending practices. Along with Chairman Barney Frank, and my colleague from North Carolina, Mel Watt, I have been the lead sponsor of legislation to combat predatory lending practices in each of the past three sessions of Congress.  Last November, the House passed HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007 by a vote of 291-127.

Specifically the bill will do the following:

Require lenders to ensure a borrower's ability to repay. The bill establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. Lenders would have to determine that a borrower has a "reasonable ability to repay," based on income, credit history, indebtedness and other factors. For refinancing, the bill will require that all loans provide a net tangible benefit to the consumer.

Prohibit certain unfair lending practices. The bill prohibits financial incentives for higher cost loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as "yield spread premiums" that lenders pay to brokers for getting them in a loan with a higher interest rate the borrower qualified for. The bill limits the prepayment penalties charged to borrowers who wish to close out their loans, typically to refinance on more affordable terms.

Establish federal minimum requirements while enabling states to impose tougher rules. Federal rule-making and enforcement duties would go to Federal agencies such as the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Trade Commission. The bill’s provisions (except for those specifically affecting secondary market liability as set forth narrowly in the bill) will set a floor so that all Americans are protected. However, states are allowed to go after new abuses that appear in the marketplace.

Provide stronger consumer protections for high-cost mortgages. Title III, which is based on the groundbreaking North Carolina law, is also part of this legislation. This section of the bill expands the protections available under federal rules on high-cost loans -- lowering the interest rate and the points and fee triggers that define high cost loans. The bill further enhances consumer protections for “high-cost loans” by:

  • prohibiting practices that increase the risk of foreclosure, such as balloon payments, encouraging a borrower to default, and call provisions,
  • prohibiting excessive fees for payoff information, modifications, or late payments,
  • prohibiting the financing of points and fees, and
  • requiring more pre-loan counseling.  
For most American families, the purchase of a home is the most important investment they will ever make. Sixty-eight percent of American families now own their own homes. Home equity constitutes at least half of American homeowners’ net worth, and more than 60 percent for low-income and minority families.
 
Predatory lending can take different forms, but includes steering borrowers into a higher priced loan when they could qualify for a loan on better terms, stripping equity from a borrower by including exorbitant fees or unnecessary products in a loan and financing the costs, and engaging in practices that spur foreclosure, such as making a loan without regard to the borrower’s ability to repay the mortgage.
 
There are incentives for brokers to force lenders and borrowers to pay yield spread premiums (YSP) that can strip hard earned equity from homeowners, especially when someone needs to refinance for a rainy day. 
 
North Carolina was the first state to adopt an anti-predatory lending law. The 1999 North Carolina law, in addition to changes made in 2001 and 2007, limit indefensible up-front fees that rob vulnerable consumers of the equity of their homes, and repeated refinancing of loans to generate more up-front fees that take more and more of the consumer’s equity. NC also prohibits balloon payments that make another refinancing inevitable, and loans with payments that do not reduce the loan balance.

For the first time since the Carter administration, homeownership in the United States is on pace to decline over a president’s tenure.

The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher in 2007 than in 2006. In fact, according to data compiled by mortgage lenders and servicers nationwide, more than 1.3 million homes received foreclosure-related warnings in 2007, up from about 720,000 in 2006. With more homeowners than ever starting to fall behind on mortgage payments in the final quarter of 2007 than ever, many experts believe that more than 2 million families could lose their home to foreclosure in 2008.

It is imperative that Congress act to address the foreclosure crisis and keep Americans from losing their homes. Because so many foreclosures stem from unsustainable subprime and predatory mortgages, it is also essential for Congress to pass effective legislation to combat predatory lending and bring an end to the practices that got us here.

In the 110th Congress I have authored two bills that will go a long way towards accomplishing these key goals.

The Emergency Home Ownership and Mortgage Equity (HOME) Protection Act

In September, 2007, I authored and introduced H.R. 3609, the Emergency HOME Protection Act, with my colleague Congresswoman Linda Sanchez. This bill would temporarily repeal a provision of the U.S. Bankruptcy Code that prohibits bankruptcy courts from modifying home mortgage agreements for “primary residences” in Chapter 13 bankruptcy. According to an independent analysis performed by the Center for Responsible Lending, this bill could help prevent up to 600,000 American families from losing their homes to foreclosure in 2008.

The bankruptcy code already allows courts to modify nearly every other form of secured debt, including mortgages on second and third residences (vacation homes), so the reforms made by H.R. 3609 are not only about sound public policy, but also basic fairness. In addition to allowing home mortgage debt to be restructured in bankruptcy, the bill makes other common sense reforms to bankruptcy laws, all of which are narrowly targeted to help homeowners save their homes from foreclosure. For instance, our bill requires lenders to notify debtors and trustees of charges or fees they assess to debtors while a bankruptcy case is pending, and it allows cumbersome pre-filing credit counseling requirements to be waived in cases where foreclosure proceedings have been initiated against a debtor’s home.

The changes made by H.R. 3609 are modest, fair, and targeted, yet they will provide meaningful and timely relief to Americans hardest hit by the subprime mortgage crisis. The bill would apply only to "subprime" and other types of high-risk, nontraditional mortgages. Further, under H.R. 3609, relief would only be available to borrowers who face imminent foreclosure, and even then, only if a court is able to determine that the borrower could be made financially solvent through judicial modification of the exploding mortgage debt. H.R. 3609 would do nothing to assist speculators, investors, or those who can afford to pay their mortgage without defaulting into bankruptcy, no matter how unfavorable the terms of their mortgage loan.

By empowering bankruptcy courts to modify mortgages for “primary residences,” the Emergency HOME Protection Act will provide a way for working American families who face the prospect of foreclosure to restructure their mortgage debt fairly, and to keep their homes.

The Emergency HOME Protection Act was approved by the House Judiciary Committee in December, 2007. Speaker Pelosi has stated that bill may come before the full House for a vote in the spring of 2008. To date, H.R. 3609 has been cosponsored by more than 65 Members of Congress, representing every regions of the country and both the major political parties. It has also received the endorsement of numerous independent organizations, including those listed below.

ACORN
American Federation of Labor – Congress of Industrial Organizations (AFL-CIO)
Central Illinois Organizing Project, Center for Responsible Lending
Center for Responsible Lending
Consumer Action
Consumer Federation of America
Fair Housing Alliance
Leadership Conference on Civil Rights
NAACP
National Association of Consumer Bankruptcy Attorneys
National Association of Consumer Advocates
National Bankruptcy Conference
National Community Reinvestment Coalition
National Consumer Law Center
National Council of La Raza
National Neighborworks Association
National Women’s Law Center, Rainbow PUSH, Service Employees International Union, U.S. PIRG
National Fair Housing Alliance
Urban League
Service Employees International Union
U.S. Conference of Mayors