House of Representatives Passes Mortgage Reform Measure
Bill Aims to Prevent Future Housing Crisis, Address Predatory LendingMay 7, 2009

WASHINGTON, D.C. Today, by a vote of 300 to 114, Congress passed H.R. 1728, the Mortgage Reform and Anti Predatory Lending Act of 2009. This legislation is aimed at curbing abusive and predatory lending - a major factor in the nation's highest home foreclosure rate in 25 years. The bill would outlaw many of the industry practices that marked the subprime lending boom, and it would prevent borrowers from deliberately misstating their income to qualify for a loan.

"Our focus is set on America's immediate financial crisis, but we have to look to the future and take steps now to ensure that we don't make the mistakes that got us here again," said Congressman Lincoln Davis.

The bill passed in the House today would establish a simple standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. For mortgage refinancing, the bill requires that all loans provide a net tangible benefit to the consumer. Also, for the first time ever, it would make the secondary mortgage market responsible for complying with these standards when they buy loans and turn them into securities.

Under the measure, lenders and the secondary mortgage market who don't comply with these standards would be held accountable by consumers for rescission of the loan and the consumer's costs for rescission, including attorney's fees. They would also have the option to rework a loan to conform to the bill's standards within 90 days of receiving notice from the consumer.

In addition, the bill encourages the market to move back toward making fixed rate, fully documented loans. During the housing boom, mortgage lenders moved away from commonsense underwriting practices, giving rise to risky, exotic mortgages and practices such as "no doc" lending and allowing loans with "negative amortization" features.

"Reducing predatory or dishonest lending practices will go a long way to re-injecting confidence in the markets at a time when America needs it most," said Davis.