Below is a summary of the “Mortgage Reform and Anti-Predatory Lending Act,” which is a part of the wider Dodd-Frank Wall Street Reform And Consumer Protection Act:
– Require Lenders Ensure a Borrower’s Ability to Repay: Establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold (I think this bans stated income loans and no-doc loans).
– Prohibit Unfair Lending Practices: Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as “yield spread premiums” that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans.
– Establishes Penalties for Irresponsible Lending: Lenders and mortgage brokers who don’t comply with new standards will be held accountable by consumers for as high as three-years of interest payments and damages plus attorney’s fees (if any). Protects borrowers against foreclosure for violations of these standards.
– Expands Consumer Protections for High-Cost Mortgages: 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.
– Requires Additional Disclosures for Consumers on Mortgages: Lenders must disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.
– Housing Counseling: Establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling.
Keep in mind that the mortgage section alone is 206 pages, so I didn’t get a chance to read it all, nor do I want to read it all, and I’m not sure anyone else did/does either…
Much of the language is vague, so only time will tell if the changes are meaningful, assuming the bill passes in a vote before Congress this week.
Of course, most regulation, especially that in the mortgage industry, is circumvented within days of being enacted, so don’t expect anything groundbreaking.