To Avoid Rerun of Foreclosure Crisis Regulations to Be Imposed

April 16th, 2009 | Tags: Foreclosure Crisis

The bigwigs on Capitol Hill are sharpening their claws to bring out a comprehensive measure that will basically change the home mortgage market from this very year. The argument is that had these rules been in vogue previously, this crisis would not have happened. No funny money would have run around causing harm and Wall Street would have had its wings clipped. The boom would have been modest and so too the bust.

On March 26th was introduced the Mortgage Reform and Anti-Predatory Lending Act of 2009 (H.R. 1728) by Rep Brad Miller (Democrat) and Rep Barney Frank (Democrat). It is hoped that the bill would swiftly pass through and enter the Senate by May. According to the banking and housing industry the bill will have smooth sailing.

A much more milder version had been pushed through by Miller 2007. It went through the House but could not make it through the Senate. But this year with more Democrats in the both the houses, the political mood has changed. Miller said, “The foreclosure crisis has wreaked havoc on middle-class families and our economy as a whole. The industry\’s arguments for watering the bill down are not at all convincing”

The bill would ban all fees being paid to loan officers – fees that are linked to interest rate and type of mortgage. During the housing boom the investment banks of Walls Strait paid heavy fees to the brokers for distributing exotic risky loans like sub-prime mortgages. No income proof was required. Practically anybody with a pulse could avail of the loan. In some cases even down payments were waived. Studies have revealed that the first time borrowers and minorities were the targeted easy victims.

The proposed bill would ban any type of compensation either direct or indirect tied to the mortgage terms.

It would create a minimum standard for all mortgages that would be mandatory. The lenders would be encouraged to advance long-term mortgages with fixed rate interest (current market rates) and other types of high-risk loans discouraged. The loan officers would have to follow the principle of “duty of care” and steer people into loans that are suitable for them corresponding to their income and repayment capacity.

Refinancing would have to pass a test and show that the refinanced loan is better and more affordable to the borrower than the previous one.

If the mortgage laws are violated then the provision would be there for the borrowers to seek immediate legal action.