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U.S. House passes Mortgage Reform and Anti-Predatory Lending Act

Dennis Norman

Dennis Norman

By: Dennis Norman

This past Thursday the U.S. House of Representatives passed H.R. 1728, the “Mortgage Reform and Anti-Predatory Lending Act.”

The bill, introduced by Rep. Bradley Miller (N.C.) sets out to “amend the Truth in Lending Act to reform consumer mortgage practice and provide accountability for such practices, to provide certain minimum standards for consumer mortgage loans, and for other purposes.

The bill, if passed by the Senate and signed into law by the president, would, among other things, do the following:

  • Prohibit steering incentives in connection with origination of mortgage loans.
  • Direct the federal banking agencies to prohibit or condition terms, acts, or practices relating to residential mortgage loans that are abusive, unfair, deceptive, predatory, inconsistent with reasonable underwriting standards, or not in the interest of the borrower.
  • Prescribe minimum standards for residential mortgage loans, including a mandatory net tangible benefit to the consumer for refinancing a residential mortgage loan.
  • Prohibit specified practices, including: (1) certain prepayment penalties; (2) single premium credit insurance; (3) mandatory arbitration (except for reverse mortgages); (4) mortgage loan provisions that waive a statutory cause of action by the consumer; and (5) mortgages with negative amortization.
  • Set forth certain tenant protections in the case of foreclosure.
  • Require a six-month notice before a hybrid adjustable rate mortgage is reset.
  • Prescribe mandatory disclosures in monthly statements for residential mortgage loans.
  • Prohibit a high-cost mortgage from containing: (1) a scheduled payment that is more than twice as large as the average of earlier scheduled payments (balloon payments); or (2) a provision which authorizes creditor discretion to accelerate the indebtedness.
  • Prohibits a creditor from: (1) lending without due regard of the mortgagor’s ability to repay; (2) recommending or encouraging default on an existing loan or other debt before, and in connection with, the actual or planned closing of a high-cost mortgage that refinances all or any portion of such existing loan or debt; (3) taking action in connection with a high-cost mortgage to structure a loan transaction as either an open-end credit plan or another form of loan in order to evade this Act; or (4) engaging in the unfair act or practice of flipping in connection with a high-cost mortgage.
As I mentioned, before becoming law, this legislation still has to make it through the Senate and be signed into law by the president.  In 2007 Rep. Bradley Miller introduced a bill with the same title that had some similarity to this bill and passed the house but never made it beyond that.