While there’s plenty of finger pointing to go around as to who’s to blame for the current recession and widening crisis, most would agree that predatory lending practices played a role in the damaging of financial markets. As a result, we’ve quietly awaited steps that will lead to tighter restrictions on lenders and how they’ll be able to operate in the future. Steps were taken to do just that today with the passing of H.R. 1728 in the House, also known as the Mortgage Reform and Anti-Predatory Lending Act. The act will take a number of steps to make sure we don’t repeat the mistakes of the past, and you can read the whole bill right here, if you’re curious.

The rules regarding mortgage finances will change significantly. H.R. 1728 takes a number of measures, including forcing mortgage lenders to retain at least a 5 percent stake in home loans that they make and then bundle up and sell to other investors. In addition, mortgage brokers will be looking at more oversight and be able to prove that the loans they provide make financial sense for homeowners. Refinancing will also have to be beneficial overall. For renters who have been stiffed by their landlords as their mortgage heads into default, the legislation will also provide an avenue for renters to prevent eviction.

That all sounds well and good but as you might expect the bill does contain a number of flaws as well. Barney Frank, who is chairman of the House Financial Services Committee, addressed some of critics’ concerns over the language used in the legislation:

“Is it vague? To some extent, but that’s what you do with the law and then they are defined by practice,” he said. “In terms of net tangible benefit I would say to the person doing the loan, ‘Would you tell your mother to do it?’”

Julia Gordon, who is a senior policy counsel for the consumer advocacy group Center for Responsible Lending, also supported the bill, stating that there are “many protections in the bill that are crucial to strong responsible lending.” Of course, she also pointed out that many rules listed in the legislation are “obvious” ones that would have been followed by mortgage originators in times past. Over the past five years, however, common sense was thrown out the window.

Source [blownmortgage]

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This entry was posted on Thursday, May 14th, 2009 at 3:55 pm and is filed under mortgage industry. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.