Congress Moves to Reform Mortgage Industry

Congress introduced legislation on Oct. 22 to combat abuses in the mortgage lending market and "to provide basic protections to mortgage consumers and investors."H.R. 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007, is a response to the current subprime mortgage crisis, according to the legislators who introduced the bill.

The proposed legislation aims to: -Establish a federal duty of care, prohibit steering and call for licensing and registration of mortgage originators. -Set a minimum standard for all mortgages that state that borrowers must have a reasonable ability to repay. -Attaches limited liability to the secondary market securitizers who package and sell interest in home mortgage loans outside of these standards.

In testimony before the House Committee on Financial services on October 24, Federal Reserve Gov. Randall S. Kroszner said, "In recent years, the subprime market has grown dramatically because of advances in credit scoring and underwriting technology, which enables lenders to charge different borrowers different prices on the basis of calculated creditworthiness. These loans are recognized by the higher prices they carry, which reflect subprime lenders' decisions to seek additional compensation for the credit risk they incur. ... While the expansion of the subprime mortgage market over the past decade has increased access to credit, the subprime mortgage market during recent years was also accompanied by a deterioration in underwriting standards. In some cases, abusive or fraudulent lending practices resulted in homeowners taking on mortgage obligations they could not afford, with terms they may not have fully understood. Delinquencies and foreclosures have increased. During the past two years, serious delinquencies among subprime adjustable-rate mortgages (ARMs) have increased dramatically, reaching nearly 16 percent in August, roughly triple the recent low in mid-2005."

But not everyone supports all aspects of the bill.

"If H.R. 3915 becomes law, some people will be locked out of the mortgage market, many of whom would have been successful homeowners," said the Mortgage Bankers Association's Kurt Pfotenhauer, SVP in testimony during the bill's hearing. "The question for this committee is whether the protections that this bill provides are worth that price."

This will be an interesting bill to keep an eye on. While the associations that represent bankers and brokers seem to support the idea of a mortgage reform bill, they all object to the bill's specifics, citing regulatory burden as a prohibitory factor in having more Americans become homeowners. What will be the technology implications of reform? Will any vendors anticipate changes and modify their technology to aid compliance for banks? Will the bill have any negative effects on mortgage technology vendors?

We will have to wait a while for answers to most of these questions, as nothing moves fast in Congress.Not everyone is happy with the specifics of H.R. 3915, "The Mortgage Reform and Anti-Predatory Lending Act of 2007."