Dubbed the "Landlords and Lawyers Relief Act" by Rep. Tom Feeney (R-FL), the controversial H.R. 3915 Anti-Predatory Lending Bill has passed muster in the House of Representatives and will now go to the Senate for further modification. Feeney says that the market was a "galloping horse" in recent years when the housing market was hot and housing prices were skyrocketing. Now he says that the "horse" has "gotten very sick", and instead of taking proper care, "What we are doing for the sick horse is feeding it strychnine". According to Wikipedia, "strychnine causes muscular convulsions and eventually death through asphyxia or sheer exhaustion." So what Feeney is saying is that H.R. 3915 is making things worse by further restricting buyer's access to credit. The positives of H.R. 3915 from the consumer's point of view include a national licensing system for mortgage loan originators and restrictions on prepayment penalties. Lenders say that prepayment penalties allow them to offer borrowers lower interest rates. By discouraging borrowers from refinancing, the lenders maintain a predictable stream of income over the prepayment period, thus reducing their risk, and can in return reduce the interest rates that they charge. Feeney prefers that borrowers be allowed the choice: a lower rate with a prepayment penalty, or a higher rate without the penalty. The amendment to H.R. 3915 would limit prepayment penalties on prime loans to 3% of the outstanding balance for the first year, declining to 2% the second year and 1% the third year. There would be no prepayment penalties allowed on prime loans after three years. The more controversial aspects of H.R. 3915 include the fact that it provides too many loopholes for investors who buy securites backed by mortgage loans. This provision would limit the borrower's right to sue loan securitizers and other assignees, as well as prohibiting class-action lawsuits. Yield spread premiums are also a hot issue from the lenders point of view. These are premiums paid to mortgage brokers, generally on higher cost subprime loans. Lenders say that banning these incentives would reduce the incentive for them to do business in "poor neighborhoods that might otherwise be underserved". Critics of H.R. 3915 fear that eliminating the yield spread premiums (incentives) would make it so borrowers would no longer have the option to choose higher up-front fees in exchange for a lower interest rate. H.R. 3915 will now move to the Senate for further debate and modification. If you are concerned about the impact of proposed H.R. 3915, click the graphic above to write to your Representatives! | 
