News
Nov 16 2007
House Passes Bill Curbing Mortgage Brokers
WASHINGTON -- The House passed legislation to give more protection to home-mortgage borrowers, but deadlocks in the Senate make it unlikely that such a measure can be enacted into law before next year, in the latest sign Congress is struggling to address the nation's mortgage crisis.
By a vote of 291-127, the House approved a bill to tighten regulation of mortgage brokers and banks' loan officers, barring them from "steering" borrowers into higher-cost loans they might be unable to repay. But such legislation hasn't yet been seriously debated in the Senate, and Democrats there failed yesterday to force a vote on a much less-controversial bill to modernize the Federal Housing Administration, which insures certain home loans against default.
The House action comes too late for hundreds of thousands of borrowers who took on too much mortgage debt in recent years. "What we have today is a bill that cannot undo what happened, but makes it much less likely that this will happen in the future," said Rep. Barney Frank, a Massachusetts Democrat who spearheaded the House bill.
Mortgage defaults have surged over the past year because of falling home prices and "resets" that have raised monthly payments for many borrowers who took out mortgages with low introductory rates. Mark Zandi, chief economist of Moody's Economy.com, West Chester, Pa., expects defaults on about three million mortgage loans this year and next. He expects about two million of those defaults to force the homeowners from their homes.
Rep. Frank's bill creates a national registry for mortgage brokers and bank employees who originate mortgages. The bill stops loan originators who get in trouble with authorities in one state from setting up shop in another. It also sets standards for states to apply in licensing mortgage brokers. In addition, the measure makes investment firms that create mortgage securities liable if they fail to take reasonable steps to ensure that the loans they acquire comply with the law.
Trade groups for home lenders opposed the bill, arguing that it is too vague and exposes lenders to bigger legal risks. They also are unhappy because the bill doesn't set a national standard that would pre-empt states from passing their own tougher legislation.
Kurt Pfotenhauer, a senior vice president at the Mortgage Bankers Association, said he doesn't expect the Senate to vote on legislation similar to that passed by the House before next year. The complexity of the bill and opposition from lenders and others are likely to make it hard for the Senate to reach a compromise. But Mr. Pfotenhauer said slow progress on these issues isn't necessarily a bad thing: "If Congress acts quickly, it usually does the wrong thing," he said.
Separately, the Senate Banking Committee has approved a bill aimed at giving more flexibility to the FHA, created in 1934 to help people of modest means buy homes. But Sen. Tom Coburn, an Oklahoma Republican, yesterday blocked an effort to push the bill to the Senate floor for a vote. He said the bill could "expose American taxpayers to $1.6 billion [in liabilities] over five years" and shouldn't be rushed through.
The move sparked an angry response from the majority party. "We as Democrats are going to continue to push forward doing everything we can to address this crisis," Sen. Patty Murray (D., Wash.) said. "But we need partners across this aisle and partners across this capital in the White House."
FHA-insured loans lost market share over the past decade as lenders found that subprime loans were more lucrative and easier to arrange. The bill would increase the maximum size of loans that can be insured by the FHA in high-cost areas, such as California. Currently, the FHA can't insure loans greater than $362,790, largely shutting it out of the market even for modest homes in some areas. The bill would raise that to the local median home price or $417,000, whichever is less. The bill would also lower the minimum down payment to 1.5% of the appraised value of the property from 3%.
Similar legislation was passed by the House in September. Some bankers predict that the FHA's share of the market for new mortgages could rebound to more than 10% from about 3% once these measures are enacted.
By a vote of 291-127, the House approved a bill to tighten regulation of mortgage brokers and banks' loan officers, barring them from "steering" borrowers into higher-cost loans they might be unable to repay. But such legislation hasn't yet been seriously debated in the Senate, and Democrats there failed yesterday to force a vote on a much less-controversial bill to modernize the Federal Housing Administration, which insures certain home loans against default.
The House action comes too late for hundreds of thousands of borrowers who took on too much mortgage debt in recent years. "What we have today is a bill that cannot undo what happened, but makes it much less likely that this will happen in the future," said Rep. Barney Frank, a Massachusetts Democrat who spearheaded the House bill.
Mortgage defaults have surged over the past year because of falling home prices and "resets" that have raised monthly payments for many borrowers who took out mortgages with low introductory rates. Mark Zandi, chief economist of Moody's Economy.com, West Chester, Pa., expects defaults on about three million mortgage loans this year and next. He expects about two million of those defaults to force the homeowners from their homes.
Rep. Frank's bill creates a national registry for mortgage brokers and bank employees who originate mortgages. The bill stops loan originators who get in trouble with authorities in one state from setting up shop in another. It also sets standards for states to apply in licensing mortgage brokers. In addition, the measure makes investment firms that create mortgage securities liable if they fail to take reasonable steps to ensure that the loans they acquire comply with the law.
Trade groups for home lenders opposed the bill, arguing that it is too vague and exposes lenders to bigger legal risks. They also are unhappy because the bill doesn't set a national standard that would pre-empt states from passing their own tougher legislation.
Kurt Pfotenhauer, a senior vice president at the Mortgage Bankers Association, said he doesn't expect the Senate to vote on legislation similar to that passed by the House before next year. The complexity of the bill and opposition from lenders and others are likely to make it hard for the Senate to reach a compromise. But Mr. Pfotenhauer said slow progress on these issues isn't necessarily a bad thing: "If Congress acts quickly, it usually does the wrong thing," he said.
Separately, the Senate Banking Committee has approved a bill aimed at giving more flexibility to the FHA, created in 1934 to help people of modest means buy homes. But Sen. Tom Coburn, an Oklahoma Republican, yesterday blocked an effort to push the bill to the Senate floor for a vote. He said the bill could "expose American taxpayers to $1.6 billion [in liabilities] over five years" and shouldn't be rushed through.
The move sparked an angry response from the majority party. "We as Democrats are going to continue to push forward doing everything we can to address this crisis," Sen. Patty Murray (D., Wash.) said. "But we need partners across this aisle and partners across this capital in the White House."
FHA-insured loans lost market share over the past decade as lenders found that subprime loans were more lucrative and easier to arrange. The bill would increase the maximum size of loans that can be insured by the FHA in high-cost areas, such as California. Currently, the FHA can't insure loans greater than $362,790, largely shutting it out of the market even for modest homes in some areas. The bill would raise that to the local median home price or $417,000, whichever is less. The bill would also lower the minimum down payment to 1.5% of the appraised value of the property from 3%.
Similar legislation was passed by the House in September. Some bankers predict that the FHA's share of the market for new mortgages could rebound to more than 10% from about 3% once these measures are enacted.
