Industry experts say that H.R. 3915 will be bad for the consumer and bad for the economy.

H.R. 3915, being touted as the "The Mortgage Reform and Anti-Predatory Lending Act of 2007" is supposed to reform mortgage practices in three areas. 

Mortgage industry experts are concerned that H.R. 3915 will be detrimental to the mortgage industry, thus making it harder for consumers to obtain favorable loans. In addition, this bill makes purchasing foreclosure properties less attractive, which may increase the inventory of bank-owned properties. 

According to the House Committee on Financial Services, H.R. 3915 contains the following provisions:

• The bill is supposed to establish a federal duty of care, prohibit steering, and call for licensing and registration of mortgage originators, including brokers and bank loan officers. 
• The new legislation is supposed to set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay. 
• The proposed legislation attaches limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards.  However, individual investors in these securities would not be liable. 
• The bill supposedly expands and enhances consumer protections for “high-cost loans” under the Home Ownership and Equity Protection Act and includes important protections for renters of foreclosed homes.

Foreclosure Properties Made Less Attractive

H.R. 3915 could have a major impact on investors of foreclosure properties. According to the House Committee on Financial Services:

In case of foreclosure, any successor who takes over the property will have to honor preexisting leases.  Tenants without a lease will have at least 90 days before being required to vacate.  In addition, the bill will incorporate recommendations by Rep. Melissa Bean (D-IL) to require counseling for certain first time homebuyers; and Rep. Chris Murphy’s (D-CT) anti-steering legislation.

Most foreclosure investors purchase properties with the intent to turn them over quickly, by offering them for sale at price significantly below fair market value as quickly as possible after the foreclosure auction is complete. With H.R. 3915, all existing leases would have to be honored, and all tenants on month-to-month leases would be allowed at least 90 days to move out.

The 90 day provision is bad enough on its own (the current provision is 30 days), but forcing investors to honor leases that are undisclosed at the time of purchase can be a pretty scary proposition. What’s to stop the prior owner from signing a new bargain-basement long-term lease with the existing tenants just to send a "screw you" message to the banks and the foreclosure investors?

Big Brother is Watching You

To the lending industry, Title I Section 102 will mean that "Big Brother is Watching You" in terms of creating a "qualified nationwide registration regime" that would create a "unique identifier of the mortgage originator". This "unique identifier" would be required on all loan documents.

The Death of Yield Spread Premiums (YSPs)

Title I Section 103 of H.R. 3915 "Provides that no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that is based on or varies with the terms of a mortgage loan."

This is the section that has the mortgage industry spitting mad, saying that it would require consumers to "take a par rate and possibly pay upfront origination costs". Mortgage industry representatives state that "One year it may be better to take a par rate and pay origination, and another year it may be better to take a higher rate and not pay upfront costs or even somewhere in between." They feel that H.R. 3915 will eliminate the ability for consumers to choose between various types of loan options.

Mortgage Brokers Required to be Licensed

This is probably the best idea in the whole H.R. 3915 document, and "Requires all mortgage originators to be licensed and registered pursuant to qualifying State licensing law or an equivalent Federal banking regime." All Realtors are required to be licensed, so why not mortgage originators?

Minimum Standards Set for All Mortgages

Title II of H.R. 3915 addresses minimum standards for all mortgages, stating that "no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan (including all applicable taxes, insurance, and assessments)."

In addition, "A determination of ability to repay will be based on the consumer’s credit history, current income, expected income the consumer is reasonably assured or receiving, current obligations, debt-to-income ratio, employment status, and other financial resources other than the consumer’s equity in the real property securing the loan." Nothing new here, other than the fact that this would now be a "regulation" instead of a "guideline". Do we really want legislators creating this type of regulation, when likely they barely understand the mortgage process themselves?

Swan Song for Refi’s?

H.R. 3915 "Provides that no creditor may extend credit for refinancing unless the creditor reasonably and in good faith determines, at the time the loan is consummated and on the basis of information known by or provided in good faith to the creditor, that the refinanced loan will provide a net tangible benefit to the consumer. The refinanced loan will not be considered to provide net tangible benefit if the costs of the loan, including points, fees, and other charges, exceed the amount of newly advanced principal."

Once again, "Big Brother is Watching You", but now they’re treating the consumer like an idiot, assuming that they’re not capable of making their own financial decisions or seeking their own financial advise from experts of their choosing. Granted some consumers are not capable of making intelligent financial decisions, but this penalizes everyone and puts them into the category of "Dummies".

Contact Your Legislators Regarding H.R. 3915

There’s more, but this is the most important stuff. The vote on this is scheduled for November 6, 2007, so make sure to contact your legislators to voice your concerns over H.R. 3915 before then. Click on the "Write to Congress" widget at the top of this post to find and communicate with the legislators for your area.

To learn more about this from a mortgage brokers standpoint, listen in on a teleconference scheduled for Friday, November 2nd at 7:00pm EST (6:00pm CST, 5:00pm MST, 4:00pm PST). This is a free call, with a Call-In Number of 1-800-214-0745  Pass code: 648439.

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