Let me thank Chairman Frank, Chairman Watt, Congresswoman Waters and all the members of the Financial Services Committee for their leadership and commitment to help Americans who are struggling. And we all know, quite frankly, many, many…
Let me thank Chairman Frank, Chairman Watt, Congresswoman Waters and all the members of the Financial Services Committee for their leadership and commitment to help Americans who are struggling. And we all know, quite frankly, many, many people are struggling to keep their homes as this mortgage crisis continues to claim victims.
This legislation adds a very important piece of what we're trying to do in terms of the protections, including limiting prepayment penalties, requiring that loans be affordable, and that refinancing provide a net benefit to borrowers. However, I have some concerns about H.R. 3915 that I hope will be addressed as it moves through the process, and I would like to just mention a few of those concerns because I think they're very important to hear. They were forwarded by ACORN, the Center for Responsible Lending, the Consumer Federation of America, Leadership Conference on Civil Rights, the NAACP, Ohio Attorney General Marc Dann, and Opportunity Finance Network. They raised concerns with regard to these issues:
One, the ability to pay. They believe the standard does not apply to all loans, it undercuts agency guidelines, and will not change the markets;
Secondly, the prohibition on steering is weak and upselling of loan rates still possible. Homeowners cannot prevent foreclosure. Some feel, and I know that this is being addressed today, that the preemption is too broad.
So, I know that, as this bill moves through the process, we will look at it. It is a starting point. I urge our colleagues to make sure that it does become stronger because this American Dream of home ownership is, quite frankly, turning to a nightmare for so many people.
I want to thank Chairman Frank for his leadership and for really trying to put together a bipartisan bill. And also, with regard to the Putnam amendment, the reporting, I think, makes sense.
November 15, 2007.
Hon. Barney Frank,
Chairman, House Financial Services Committee.
Hon. Spencer Bachus,
Ranking Member,
House Financial Services Committee.
Dear Chairman Frank and Ranking Member Bachus: We, the
undersigned organizations, write to present our views on H.R.
3915, the Mortgage Reform and Anti-Predatory Lending Act of
2007. While we greatly appreciate your efforts to reduce
predatory lending and to restore balance to the mortgage
market, we believe this bill requires improvements in the
areas described below in order for the bill to achieve its
goals.
Subprime lending has been a disaster of monumental
proportions, shattering hopes of economic progress for
millions of families and triggering a devastating chain
reaction of losses for communities and businesses. More than
two million families will likely lose their homes as a
result, and for most families--especially African-Americans
and Latinos--their home equity represents the greatest share
of their family wealth. Wall Street's demand for risky loans
with higher interest rates played a key role in encouraging
reckless lending, and brokers delivered whatever loans they
could sell.
When H.R. 3915 was introduced, we applauded many of its
strongest provisions, such as the originator duty of care and
anti-steering rules, the bans on yield spread premiums,
prepayment penalties, mandatory arbitration, and single
premium credit insurance, and the special protections for
extremely high-cost mortgages and for renters.
It is crucial to retain those strong provisions, to improve
the remedies and market incentives in the bill, and to avoid
preemption of state laws related to these issues.
Unfortunately, as the bill has passed through the legislative
process, several of the strongest provisions (such as the
duty of case and ban on yield-spread premiums) have been
weakened, the remedies have been weakened rather than
strengthened, and a preemption clause has been added that
would eliminate important state claims that help homeowners
protect the homes.
Our concerns about the bill fall into four main areas:
``Ability to Pay'' Standard Does Not Apply to All Loans,
Undercuts Agency Guidance, and Will Not Change Market: The
bill requires no ability to pay standards for approximately
90% of the current mortgage market and creates an
irrebuttable presumption that any loan below 8.25% is
affordable.
This immunity undercuts the existing joint agency guidance
that currently sets ability to pay standards for risky loans,
especially loans such as payment options ARMs, the majority
of which are ``qualified mortgages.'' Moody's estimates that
monthly payments on $220 billion of POARMs will reset--in
most cases to much higher monthly payments--between 2009 and
2011. Additionally, because there is no requirement that
secondary market purchasers conduct due diligence, we fear
that the secondary market will continue to purchase abusive
loans and choose to absorb the expense of any cures as part
of the cost of doing business.
Prohibition on Steering is Weak and Upselling of Loan Rate
Still Possible: Rather than prohibiting yield spread
premiums, as was originally intended, the bill as amended now
essentially authorizes such practices as long as there is
disclosure to the consumer. Research shows that disclosure
has virtually no effect on preventing abusive lending
practices such as steering. We also fear that incorporating
Title II into the Title I standards significantly weakens the
entire structure, and the permitted damages are insufficient
to change the market. Moreover, the damages for violation of
the steering provision are too low to change broker behavior.
Homeowners Cannot Prevent Foreclosure: As currently
drafted, homeowners have no rights against the actual holder
of the loan (in other words, against the entity that will
foreclose on them) until a foreclosure has already begun. At
that point, not only has the family been traumatized, but the
damage to the homeowner's credit is done, which will likely
prevent the use of the rescission remedy. Moreover, even in
foreclosure, it is not fully clear that homeowners will be
able to reach the holder in the vast majority of situations.
Preemption is Too Broad: Although we appreciate that there
is not preemption for the entire bill, the broad preemption
in the area of assignee liability would wipe out the many
existing state laws, such as UDAP statutes [and UCC
protections?], that provide remedies against assignees. Since
most loans are sold soon after origination, and since so many
originators and creditors are thinly capitalized (assuming
they even are still in business), many homeowners will be
left without any remedy for unaffordable loans.
Ultimately, unless legislation fundamentally changes the
incentive structure both for Wall Street and for mortgage
originators, predatory lending is likely to continue in one
form or another.
We look forward to continuing to work with the Congress as
this bill moves through the legislative process.
Sincerely,
ACORN, CDFI Coalition, Center for Responsible Lending,
Consumer Federation of America, Leadership Conference
on Civil Rights, NAACP, Ohio Attorney General Marc
Dann, Opportunity Finance Network.