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Monday, October 22, 2007

Mortgage and predatory lending bill introduced in the House

Policy response is finally on the floor:

A House Financial Services Committee proposal goes part way to closing the barn door after the horses have been rustled.

“The Mortgage Reform and Anti-Predatory Lending Act of 2007” introduced today in the House Financial Services Committee steps up to some of the needed protections for homeowners. Still, those who were force-fed shady loans downstream from Bear Stearns will not fare so well as the befuddled buyers of them upstream. That is, the Fed is not going to bail anybody out with less than a six-figure income.

At least some action is being taken:

The bill will reform mortgage practices and improve consumer protection. The proposed legislation
  • Calls for licensing and registration of mortgage originators, including brokers and bank loan officers. It prohibits steering, and establishes "a federal duty of care."
  • Sets a minimum standard for all mortgages, including the condition that "borrowers must have a reasonable ability to repay."
  • Attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. (Individual investors in these securities would not be liable.)
  • Expands consumer protections for “high-cost loans” under the Home Ownership and Equity Protection Act.
  • Protects renters of foreclosed homes from being evicted. Lease terms must be honored. Absent a lease, renters have 90 days.
Sponsors are: Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA). "This bill represents a significant step forward to clean up and prevent a number of the questionable practices that, unfortunately, took hold in the mortgage lending industry in the last several years. I hope the industry will embrace the changes and allow the bill to move forward quickly” said Watt.

This is on the table, but it will be buried under hundreds of thousands of mortgages already signed.

At a minimum, the Feds need to mandate SEC regulation of hedge funds, at least with regard to disclosure. The corrupt repackaging of securities is just part of what is a bigger mess. They have apparently infected money market funds, supposedly safe havens. The reason hundreds of billions in bad paper can be floated so easily is that practices are not open to the public.

Sure, the ratings agencies broke down, but with transparency, objective eyes -- those belonging to non-clients -- would have exposed this stuff.

See our proposals for an effective response at Demand Side Economics Policy Index.

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