WASHINGTON — The House Financial Services Committee reported out a bill that aims to prevent future mortgage-related abuses but has the potential to ensnare credit unions with additional regulatory burdens.
The Mortgage Reform and Anti-Predatory Lending Act of 2007, approved 45-19, would establish a licensing and registration system for mortgage originators, create a minimum standard requiring that borrowers have a reasonable ability to repay, and will attach a limited liability to secondary market securitizers.
Earlier last week, House Financial Services Committee Ranking Member Spencer Bachus threw his support behind the bill, which is co-sponsored by Chairman Barney Frank (D-Mass.)
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CUNA and NAFCU expressed some concerns in letters to the Hill that federally regulated depository institutions should not have to be licensed, which would include additional training. That was backed down to licensing for unregulated entities and simple registration for financial institutions. Still, NAFCU Director of Legislative Affairs Brad Thaler said creating this database would come at a cost to financial institutions and ultimately borrowers.
If a state does not have a system that meets the minimum standards for state-licensed loan originators or does not participate in the national registry, then the Department of Housing and Urban Development will establish a backup licensing system for loan originators in that state. HUD will be granted enforcement authority over such loan originators.
Also, on the right of rescission/ability to repay provision, which does not apply to "qualified" or prime mortgages, NAFCU was concerned that a time limit be set for a borrower to come back and challenge a mortgage as unsuitable to them or some type of liability safe harbor. CUNA President/CEO Dan Mica simply wrote in his letter that subjective definitions should be worked out through regulation.
CUNA supported the elimination of prepayment penalties on subprime loans, which Mica noted are already prohibited under the Federal Credit Union Act. But, the group took issue with the prohibition of financing points and fees in the bill. "While we do not support a complete prohibition on the financing of points and fees, which at times can be helpful to the consumer if structured appropriately, CUNA could support important limitations on this activity," Mica wrote.
NAFCU reported that a narrow exemption was approved by voice vote affecting title fees, title insurance and similar costs.
CUNA also recommended a Government Accountability Office study on the bill's disclosures, should it become law, regarding their complementary or duplicative nature.
Previously, NCUA Chairman JoAnn Johnson testified on the legislation, supporting its general premise and asking that NCUA be included as an implementing regulator for credit unions; this issue was addressed in the manager's amendment and was noted to be an oversight.
CUNA Senior Vice President of Legislative Affairs John Magill took this oversight as "telling of the intended persons they're going after." He added, despite the side effects, "This was not aimed at us in the first place."
The bill would also attach limited liability to secondary market securitizers. Additionally, the legislation would expand and enhance consumer protections for "high-cost loans," including prohibiting steering into higher cost loans than the borrower qualifies for; include protections for renters of foreclosed homes; and establish an Office of Housing Counseling through HUD.
The bill could see a vote by the full House as early as this week.
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