House Passes Historic Mortgage Reform Legislation
The House of Representatives today overwhelmingly approved legislation to curb abusive and predatory lending – a major factor in America’s highest home foreclosure rate in 25 years. H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, will outlaw many of the egregious industry practices that marked the subprime lending boom. It represents a key step in the overhaul of the nation’s financial regulations.
The measure was introduced by Reps. Brad Miller (D-NC), Mel Watt (D-NC), and Barney Frank (D-MA), and approved by a vote of 300-114.
“Our economy will eventually recover and we will again have a healthy housing market, but we're in for a tough spell. This legislation will ensure that the reckless, predatory mortgage practices that started this crisis will not happen again,” said Rep. Miller.
“My joy at House passage of this important bill is tempered by my belief that we could have avoided the major credit and economic meltdown we are now experiencing had we passed this legislation when Rep. Miller and I originally proposed it 6 years ago. Unfortunately, the alarms we raised were not heeded and millions of consumers, indeed our entire economy, paid a heavy price,” said Rep. Watt.
The legislation counters the trend toward irresponsible lending by establishing a simple standard for all mortgages: lenders must make sure that borrowers have the ability to repay the home loans they are sold. The bill also requires that all mortgage refinancing loans benefit the consumer, and it bans predatory schemes that “steer” borrowers into higher cost loans. The growth of exotic, “no-documentation” loans, along with borrowers who deliberately misstated their income to qualify for a loan, were key factors in the recent subprime meltdown.
In addition, H.R. 1728 encourages a return to sound underwriting practices by prohibiting mortgage lenders from relinquishing all responsibility for the bad loans they make and sell to Wall Street. Under the measure, lenders will now be required to keep “skin in the game” and retain a 5 percent stake in any home loan they make and sell. Also, for the first time ever, the large secondary mortgage market will bear responsibility for bad loans they purchase and securitize, bringing accountability back to every level of the mortgage lending chain.
According to the Center for Responsible Lending, 2.4 million Americans risk foreclosure in 2009, and that number could rise to 8.1 million over the next four years. Mortgage lending reform is a critical part of efforts in Congress to reform America’s financial system and prevent a future crisis of this scale. If Congress had enacted these long overdue mortgage lending reforms, which Democrats have been advocating since 1999, the subprime lending meltdown could have been avoided altogether.
To view a summary of H.R. 1728, click here.
To view the amendments to H.R. 1728 approved by House today, click here.