Legislation Watch: House Passes Bill Restricting Mortgage Lenders

Desperate to show responsiveness and action on behalf of the growing number of families hit by the subprime crisis, the House passed a bill on Thursday restricting the activities of mortgage lenders.
The bill forces mortgage lenders to obtain licenses to operate, makes them responsible for determining a family's true ability to pay mortgage payments, and fines them for pushing borrowers toward subprime loans.
The bill sponsors say the restrictions are designed to prevent additional families from falling prey to the mortgage crisis. They recognize that the bill won't help families currently in trouble, but will go towards a better future.
"What we have today is a bill that cannot undo what happened, but makes it much less likely it will happen in the future," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, to the Federal News Radio.
More than 2 million adjustable rate mortgages are scheduled to reset by the end of 2008, and many American homeowners are expected to fall into debt. Supporters of this bill say that this situation could have been averted with stronger rules, and that past practices in the sub-prime market amounted to predatory lending, with confusing terms, high fees, and too much pressure by lenders.
Opponents to the bill, including Republicans and the White House administration, warn that measures such as these and other congressional intervention can make things worse. They worried that action by Congress can make it harder for current mortgage holders to refinance, and are concerned that lenders would be expected to forecast borrower's ability to pay.
Banking associations also oppose the bill. The Mortgage Bankers Association says the bill will limit credit availability and options for homeowners.

The bill:

> Prohibits lenders from making loans that borrowers can't repay

> Bans lenders from pushing homeowners into refinancing that provide minimal benefit and exorbitant fees

> Outlaws excessive fees for late payments

> Makes Wall Street banks that package mortgage securities into investments accountable for lending law violation

> Creates the Nationwide Mortgage Licensing System and Registry, a system for mortgage bankers and bank loan officers

The bill passed 291-127 and now goes to the Senate, where another bill attempting to regulate the mortgage industry has been stalled for weeks.