The Mortgage Reform and Anti-Predatory Lending Act of 2007

The Mortgage Reform and Anti-Predatory Lending Act of 2007, introduced by Barney Frank, is designed to provide basic protection to consumers and investors and to provide comprehensive legislation to combat abuses in mortgage lending practices. This legislation seeks to reform the consumer lending practices, provide licensing and accountability for mortgage lenders and to provide certain minimum standards for consumer mortgages. This legislation has been referred from the House Banking Committee and should pass the House this year.

First, the bill will establish a system of licensing and registration of individual mortgage originators, brokers and bank loan officers as well as the establishment of the Nationwide Mortgage Licensing System and Registry.

Second, the legislation, under section 105, will set a minimum residential mortgage origination standards for all mortgages by requiring originators to provide a Federal duty of care, net tangible benefits to the consumer, strict anti-steering practices and requires remedies if these standards are not upheld. The Federal Duty of Care will require mortgage originators to diligently work to expose the consumer to a wide range of products, requires that the originator disclose both the cost and benefits of each financial product and disclose the cost of the mortgage origination services so that the consumer can make informed choice pertaining to their mortgage. Creditors must determine through good faith efforts based on verification and documentation that the consumer will receive net tangible benefits and has the ability to repay the loan before any residential loan is considered. It further states that no mortgage originator can receive incentive compensation, directly or indirectly, that is based on or varies with the term of any residential loan and prevents mortgage originators from steering consumers to any products that are not in their best interest. This legislation will require that every mortgage originator be licensed and an identifying number be recorded on every loan document thereby ensuring that a permanent record of who originated the loan will exist. The last part of Section 105 will set up remedies for the consumer if these practices are not upheld by the mortgage originator at three times the amount of direct or indirect compensation that accrued to the mortgage originator in connection with the residential mortgage plus the cost of reasonable attorney’s fees.

Third, the legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. For loans that violate the minimum standard for the consumer’s ability to pay or net tangible benefits allows that the consumer has an individual cause of action against the assignees and securitizers of a loan. However, individual investors and pools of investors in these securities would not be liable.

Finally, the bill disallows prepayment penalties for subprime loan and requires that all prepayment penalties expire at least 90 days before a loan resets. Additionally the legislation includes important protections for rents of foreclosed homes.

Lisa Safford has been involved in the commercial real estate and development industry for over 20 years.

For more information on this and other real estate topics please contact Lisa Safford at (843) 884-7773 or via e-mail at lbsafford@comcast.net