For those not familiar with the basic life cycle of a bill (from govtrack.us):

• Introduced – Mar 26, 2009
• Referred to Committee – Mar 26, 2009
• Reported by Committee – (pending)
• Voted on in House – (pending)
• Voted on in Senate – (pending)
• Signed by President – (pending)

According to the NAFAC:

One key provision of H.R. 1728 would create a nationwide licensing and registration system for residential mortgage providers, something already included in the 2008 Housing and Economic Recovery Act. NCUA and other federal financial institution regulators are responsible for handling implementation for credit unions, banks and thrifts.

Tuesday’s session will be held at 10 a.m. in the Rayburn House Office Building. The committee said it may also hold additional sessions on subsequent days if needed.

Related Posts:

1. HR 3915 Mortgage Reform Act of 2007
2. Mortgage Lending in Crisis: Insufficient Warehouse Lines Affect Lenders
3. 11/9/07 NAMB Legislative Alert On HR 3915

H.R. 3915

Title I (Mortgage Origination)

Subtitle A.  Licensing System for Residential Mortgage Loan Originators.

* This subtitle is from Rep. Bachus’ bill (HR 3012) and provides for licensing and registration of individual mortgage brokers and registration of bank employees that originate mortgages, as well as the establishment of a Nationwide Mortgage Licensing System and Registry (NMLSR).

Applicants for State license and registration will furnish certain information to the NMLSR, including fingerprints and personal history and experience, and meet minimum standards including pre-licensing education and written tests.

Federal banking agencies will develop and maintain a system for registering the employees of banks and their subsidiaries as registered loan originators with the NMLSR.

If a State does not have a system that meets the minimum standards for State-licensed loan originators or does not participate in the NMLSR, then HUD will establish a backup licensing system for loan originators that operate in that State.  HUD will be granted enforcement authority over such loan originators similar to banking regulators.

Subtitle B.  Residential Mortgage Loan Origination Standards

* Federal Duty of Care: All mortgage originators (including individuals as well as companies and banks that originate mortgages) will be subject to a federal duty of care that requires (1) licensing and registration, as applicable, under State or Federal law (including under subtitle A), (2) presenting consumers with appropriate mortgage loans (i.e., consumer has reasonable ability to repay and receives net tangible benefit, and loan does not have predatory characteristics), (3) making full disclosures to consumers, (4) certifying to lenders compliance with mortgage origination requirements, and (5) including a mortgage originator’s unique identifier in loan documents.

* Anti-Steering: For mortgage loans that are not prime loans, no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premiums) that varies with the terms of the mortgage loan (except for size of the loan and number of loans). Regulations will be promulgated to prohibit mortgage originators from (1) steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide net tangible benefit, or has predatory characteristics, (2) steering any consumer from a prime loan to a subprime loan, and (3) engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.

* Remedies: Remedies will be up to three times broker fees plus costs.

Title II (Minimum Standards for All Mortgages)

* Ability to Repay/Net Tangible Benefits: Based on Federal bank regulatory guidance and North Carolina standard. Requires creditors to make a reasonable determination, at the time the mortgage is consummated, that:

the consumer has a reasonable ability to repay the loan; or

for refinancing, the refinanced loan will provide a net tangible benefit to the consumer.

* Safe Harbor: A presumption can be made that the minimum standards (reasonable ability to repay and net tangible benefit) are met for “qualified mortgages” and “qualified safe harbor mortgages.” Qualified mortgages (prime loans) are presumed to meet the minimum standards and this presumption may not be rebutted. For qualified safe harbor loans, the presumption may be rebutted only against creditors.

Qualified mortgages are prime loans with APRs that do not exceed the North Carolina standard.

Qualified safe harbor mortgages are loans with (1) documented consumer income, (2) underwriting process based on fully indexed rate (taking into account taxes, insurance, and assessments), (3) no negative amortization, (4) other requirements that may be established by regulation, AND (5) one of the following:  (i) fixed payment for at least 5 years, (ii) for variable-rate loans, APR that varies less than 3% over the interest-rate index, OR (iii) DTI  not greater than a percentage prescribed by regulation.

* Assignee/Securitizer Liability (does not extend to trusts and investors): Subject to exemptions below, for loans that violate the minimum standards (reasonable ability to repay and net tangible benefits), a consumer has an individual cause of action against assignees and securitizers for rescission of the loan and the consumer’s costs for rescission.

Exemption from Liability:  An assignee/securitizer will not be liable for a loan that violates the minimum standards if the assignee/securitizer provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer, OR (1) has a policy against buying mortgage loans that are not qualified mortgages or qualified safe harbor mortgages and exercises reasonable due diligence to adhere to such policy AND (2) has obtained representations and warranties from the seller or assignor of the loan regarding not selling or assigning loans that violate the minimum standards.1

* Defense to Foreclosure: When the holder of a mortgage loan or anyone acting on behalf of the holder initiates a judicial or non-judicial foreclosure, (1) the consumer who has a rescission right under this bill may assert such right as a defense to foreclosure against the holder to forestall foreclosure, or (2) if the rescission right has expired, the consumer may seek actual damages (plus costs) against the creditor, assignee, or securitizer.

* Effect on State Laws: Provides limited preemption of State laws relating only to assignee/securitizer liability (but not to creditor liability). Provides for a national standard and unique Federal remedy for assignee/securitizer liability arising from a claim regarding lack of reasonable ability to repay and lack of net tangible benefit. States, however, may pass laws or add remedies relating to the liability of other parties, including the creditors.

* Renters: Provides certain protections for renters when the homes they rent go into foreclosure.

* Additional Standards and Requirements: Prohibits certain prepayment penalties, as well as single-premium credit insurance and mandatory arbitration, for mortgage loans.

Title III (High-Cost Mortgage)

* This title is from the Miller-Watt bill of 109thCongress (HR 1182) and expands the scope of and enhances consumer protections for “high-cost loans” under HOEPA by, among other provisions:

lowering the APR trigger from 10% to 8% over comparable Treasuries (codifies existing Board standard),

lowering the points and fee trigger from 8% to 5% and including additional costs and fees in the trigger,

prohibiting the financing of points and fees,

prohibiting excessive fees for payoff information, modifications, or late payments,

prohibiting practices that increase the risk of foreclosure, such as balloon payments, encouraging a borrower to default, and call provisions, and

requiring pre-loan counseling.

Title IV (Office of Housing Counseling)

* This title is from Rep. Biggert’s bill (HR 3019) and establishes within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling.

Requires HUD to provide for the certification of various computer software programs for consumers to use in evaluating different residential mortgage loan proposals.

Authorizes appropriation not to exceed $3 million for national public service multimedia campaigns for homeownership counseling services for fiscal years 2008, 2009, and 2010.

Requires HUD to provide financial and technical assistance to States, local governments, and nonprofit organization regarding the establishment and operation of related educational programs, and authorizes appropriation of $45 million for each of fiscal years 2008 through 2011.

Directs HUD to study and report to Congress on the root causes of the default and foreclosure of home loans.

1 In other words, assignees and securitizers will be liable under this provision only if they fail all four of the following tests:

(1) the loan does not meet the “ability to repay” or “net tangible benefit” standard; (2) the loan is neither a prime loan (“qualified mortgage”) nor a safe harbor loan (‘qualified safe harbor mortgage”); (3) the loan is not cured; and (4) there is no policy, no reasonable due diligence, and no reps and warranties as specified in the bill.

Related Posts:

1. HR 3915 Manager’s Amendment
2. HR 3915 Reform Act Section by Section Summary
3. HR 3915 Mortgage Reform Act of 2007

On Tuesday, the House Financial Services Committee (“HFSC”) debated, marked-up, and voted 45-19 to approve the Mortgage Reform and Anti-Predatory Lending Act of 2007 (“HR 3915”).  This vote clears the way for HR 3915 to move to the floor of the U.S. House of Representatives for further debate and a vote of the full House, which is expected to occur as early as next week.

The amended version of HR 3915 retains provisions calling for a national registry for all mortgage originators, including a registry for federal bank loan officers, and strengthening professional standards for those originators operating under state licensing regimes.  Removed from the bill are the unduly burdensome net worth and surety bond requirements originally included, leaving it to the states to individually determine appropriate bonding requirements for mortgage originators.

Additionally, Rep. Gary Miller (R-CA) offered an amendment aimed at clarifying the anti-steering provision in the bill, which affects consumers’ ability to finance origination costs and fees into the interest rate or loan amount.  After a discussion about the need to modify the anti-steering provision to address our many concerns with it, HFSC Chairman Barney Frank (D-MA) committed to working with Rep. Miller on the language of the provision before the bill goes to the House floor.

NAMB continues to work closely with Chairman Frank and HFSC committee staff on addressing our concerns and making improvements to HR 3915.  NAMB has also been working closely with the California Association of Mortgage Brokers (“CAMB”) to maintain an open dialogue with Rep. Miller and other leaders in the House of Representatives regarding HR 3915.  We will continue to negotiate and deliberate on our principal concerns with HR 3915 until they have been fully addressed. of the HFSC prior to Tuesday’s mark-up.

Related Posts:

1. HR 3915 NAMB Teleconference Info
2. HR 3915 Mortgage Reform Act of 2007
3. HR 3915 HFSC NAMB Testimony

Success! YSP PRESERVED. Today, the U.S. House of Representatives passed the final version of H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007″ on a vote of 291 to 127. This bill includes three important provisions that offer effective consumer protection without favoring any market competitor:

FINAL VOTE RESULTS FOR ROLL CALL 1118

(Democrats in roman; Republicans in italic; Independents underlined)

H R 3915 YEA-AND-NAY 15-Nov-2007 6:12 PM

QUESTION: On Passage

BILL TITLE: Mortgage Reform and Anti-Predatory Lending Act

—- YEAS 291 —

—- NAYS 127 —

—- NOT VOTING 14 —

Related Posts:

1. 11/9/07 NAMB Legislative Alert On HR 3915
2. HR 3915 Mortgage Reform Act of 2007
3. HR 3915 NAMB Teleconference Info

The Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915)

TITLE I-MORTGAGE ORIGINATION

Subtitle A – Licensing System for Residential Mortgage Loan Originators

Sec. 101.  Purposes and methods for establishing a mortgage licensing system and registry.

Sets forth objectives for a Nationwide Mortgage Licensing System and Registry (NMLSR) for the residential mortgage industry to be established by the States through the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators.

Sec. 102.  Definitions.

Establishes definitions for various terms for this subtitle, including:  “loan originator,” “loan processor or underwriter,” “nationwide mortgage licensing system and registry,” “registered loan originator,” “residential mortgage loan,” “State-licensed loan originator,” and “unique identifier.”

Sec. 103.  License or registration required.

Provides that an individual may not engage in the business of a loan originator without obtaining and maintaining registration as a registered loan originator or a license and registration as a State-licensed loan originator, and obtaining a unique identifier.  Makes clarifications regarding administrative and clerical workers, as well as loan processors and underwriters.

Sec. 104.  State license and registration application and issuance.

The applicant to any State for licensing and registration as a State-licensed loan originator has the obligation to furnish certain information to the NMLSR, including fingerprints and personal history and experience.  Minimum standards for license issuance includes no revocation of loan originator license in the past 5 years, no felony conviction in the past 7 years, demonstration of financial responsibility, completing pre-licensing education reviewed, approved, and published by the NMLSR (at least 20 hours), and passing a written test developed and administered by the NMLSR (at least 75% correct answers out of minimum 100 questions).

Sec. 105.  Standards for State license renewal.

Minimum standards for license renewal include the State-licensed loan originator continuing to meet the minimum standards for license issuance and satisfying continuing education requirements.

Sec. 106.  System of registration administration by Federal banking agencies.

Within one year of the enactment, the Federal banking agencies will jointly develop and maintain a system for registering the employees of banks and their subsidiaries as registered loan originators with the NMLSR, and will furnish or cause to be furnished to the NMLSR certain information including fingerprints and personal history and experience.  The Federal banking agencies, through the FFIEC, will coordinate with the NMLSR to establish a unique identifier for all registered loan originators.

Sec. 107.  Secretary of housing and urban development backup authority to establish a loan originator licensing system.

If a State does not have in place a system that meets the minimum standards set forth in this section for State-licensed loan originators or does not participate in the NMLSR within 1 year of enactment (2 years for those States with legislatures that meet biennially) or any time thereafter, a HUD backup licensing system will be established where HUD will maintain and administer a system of licensing and registering loan originators operating in such a State as State-licensed loan originators.  HUD may grant an extension up to 6 months to those States making a good faith effort to meet the minimum standards.  The HUD license can only be used in the State for which it was granted.

Sec. 108.  Backup authority to establish a nationwide mortgage licensing and registry system.

If HUD determines that the NMLSR is failing to meet the requirements of the legislation, HUD will develop and maintain system for registration and regulation of mortgage originators.

Sec. 109.  Fees.

The Federal banking agencies, HUD, and the NMLSR may charge reasonable fees to cover costs for maintaining and providing access to the NMLSR, to the extent such fees are not charged to the consumers for accessing the information.

Sec. 110.  Background checks of loan originators.

The Attorney General will provide access to all criminal history information to States for regulating State-licensed loan originators to the extent criminal background checks are required under State law for licensing loan originators.  CSBS or a wholly owned subsidiary may be used as channeling agent of States for requesting and distributing information between the Department of Justice and the State agencies.

Sec. 111.  Confidentiality of information.

Except as otherwise provided, requirements under Federal or State privacy or confidentiality laws, and any privilege arising under Federal or State law, will continue to apply after information has been disclosed to the NMLSR or the HUD system.  Such information may be shared with all State and Federal regulatory officials with mortgage industry oversight authority without loss of privilege or loss of confidentiality protections provided by such laws.

Sec. 112.  Liability provisions.

HUD or any State official or agency, or organization serving as the administrator of the NMLSR or the HUD system, or any officer or employee thereof, will not be subject to any civil action for monetary damages for good-faith action or omission while acting within the scope of office or employment.

Sec. 113.  HUD Enforcement

If HUD sets up a backup licensing system pursuant to section 107, then HUD will have regulatory authority over the licensees of such backup licensing system similar to banking regulators (e.g., summons authority, examination authority, and other enforcement authority including the ability to issue cease and desist orders and to assess civil money penalties).

Subtitle B – Residential Mortgage Loan Origination Standards

Amends the Truth in Lending Act to provide the following:

Sec. 121. Definitions.

Establishes definitions for various terms, including:  “Federal banking agencies” (Federal Reserve, OCC, OTS, FDIC, and NCUA), “mortgage originator,” “qualified nationwide registration regime,” “qualifying state licensing law,” “residential mortgage loan,” “securitization vehicle,” and “securitizer.”

Sec. 122. Residential mortgage loan origination.

All mortgage originators (including mortgage brokers and depository institutions that originate mortgages) will be subject to a federal duty of care that requires (1) licensing and registration under State or Federal law (including subtitle A of title I of this legislation), (2) diligently working to present the consumer with a range of residential mortgage loan products for which the consumer likely qualifies and are appropriate to the consumer’s existing circumstances (i.e., consumer has reasonable ability to repay and receives net tangible benefit, and loan does not have predatory characteristics), (3) making full, complete, and timely disclosures to consumers, (4) certifying to creditors compliance with mortgage origination requirements under this section, and (5) including in all loan documents the unique identifier of the mortgage originator.  Mortgage originators are not required, however, to present residential mortgage loan products of creditors that do not accept consumer referrals or applications from the mortgage originator, and creditors are not required to offer products that the creditor does not offer to the general public.  This subsection expressly does not create an agency or fiduciary relationship, but mortgage originators are free to become an agent or a fiduciary if they so desire.  Federal banking agencies, in consultation with HUD and FTC, will jointly prescribe regulations to further define the federal duty of care.  The Federal banking agencies will prescribe regulations requiring depository institutions to establish procedures for monitoring compliance with the requirements of this section and the registration procedures of section 106 of this legislation.

Sec. 123. Anti-steering.

For loans that are not qualified mortgages (i.e., not prime loans), no mortgage originator can receive, and no person can pay, any incentive compensation (including yield spread premium) that is based on or varies with the terms of such loans (other than amount of principal).  The Federal banking agencies, in consultation with HUD and FTC, will jointly prescribe regulations to prohibit (1) mortgage originators from steering any consumer to a residential mortgage loan that the consumer lacks a reasonable ability to repay, that does not provide net tangible benefit, or that has predatory characteristics, (2) mortgage originators from steering any consumer from a qualified mortgage (prime loan) to a loan that is not a qualified mortgage, and (3) abusive or unfair lending practices that promote disparities among consumers of equal credit

worthiness but of different race, ethnicity or age.  However, nothing in this subsection should be construed as limiting the ability of a mortgage originator to sell residential mortgage loans to subsequent purchasers, restricting a consumer’s ability to finance origination fees if they were disclosed to the consumer and do not vary with the consumer’s decision to finance such fees, or prohibiting incentive payments to a mortgage originator based on the number of loans originated.

Sec. 124. Liability.

A cause of action will exist under section 130(a) and 130(b) of TILA for a mortgage originator’s failure to comply with this section.  The maximum liability of a mortgage originator for violation of this section will not exceed three times the total amount of mortgage originator fees, plus the consumer’s costs including reasonable attorney’s fees.

Sec. 125. Regulations.

Regulations under this title will be promulgated within 12 months of the enactment of this Act, and take effect no later than 18 months after the enactment.

TITLE II-MINIMUM STANDARDS FOR MORTGAGES

Amends the Truth in Lending Act to provide the following:

Sec. 201. Ability to repay.

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).  Federal banking agencies, in consultation with FTC, will jointly prescribe regulations regarding this provision.  A determination of reasonable 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.

Sec. 202. Net tangible benefit for refinancing of residential mortgage loans.

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 obtained in good faith by 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 without any corresponding changes in the terms of the refinanced loan that are advantageous to the consumer.  The Federal banking agencies will jointly prescribe regulations further defining the term “net tangible benefit.”

Sec. 203. Safe harbor and rebuttable presumption.

A presumption can be made that the minimum standards (reasonable ability to repay and net tangible benefit) are met for “qualified mortgages” and “qualified safe harbor mortgages.”  Qualified mortgages (prime loans) are presumed to meet the minimum standards and this presumption may not be rebutted.  For qualified safe harbor loans, the presumption may be

rebutted only against creditors.  Qualified mortgages are prime loans with APRs that are not equal to or greater than 3% over comparable Treasuries or 175 basis points over the Federal Reserve H.15 rate for first lien loans, and 5% over comparable Treasuries or 375 basis points over the Federal Reserve H.15 rate for non-first lien loans.  Qualified safe harbor mortgages are loans with (1) documented consumer income, (2) underwriting process based on fully indexed rate (and taking into account taxes, insurance, and assessments), (3) no negative amortization, (4) other requirements that may be established by regulation,

AND

(5) one of the following:  (i) fixed payment for at least 5 years, (ii) for variable-rate loans, the APR varies based on a margin that is less than 3% over a single interest rate index,

OR

(iii) loan does not cause the consumer’s total monthly debts, including amounts under the loan, to exceed a percentage (to be established by regulation) of monthly gross income.

Federal banking agencies may jointly prescribe regulations to revise, add to, or subtract from these safeharbor provisions and to carry out the purposes of this subsection.

Sec. 204. Liability.

For a loan that violates the minimum standards for reasonable ability to repay or net tangible benefits as set forth by regulation, a consumer has a cause of action against a creditor for rescission of the loan and the consumer’s costs.  A creditor will not be liable for such rescission if the creditor provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer.  In addition, for a loan that violates the minimum standards, a consumer has an individual cause of action against any assignee or securitizer for rescission of the loan and the consumer’s costs.  An assignee or securitizer will not be liable for a loan that violates the minimum standards if the assignee or securitizer: (1) provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer, OR (2) (a) has a policy against buying mortgage loans that are not qualified mortgages or qualified safe harbor mortgages and, in accordance with regulations that the Federal banking agencies and SEC will jointly prescribe, exercises reasonable due diligence to adhere to such policy, including through sampling, AND (b) has obtained representations and warranties from the seller or assignor of the loan regarding not selling or assigning loans that violate the minimum standards and takes reasonable steps to obtain the benefit of such representations or warranties.  If any creditor, assignee or securitizer and a consumer fail to agree on a cure, or if the consumer fails to accept a cure, the creditor, assignee, or securitizer may provide the cure and the consumer may challenge the adequacy of the cure within 6 months of the cure.  If a creditor, assignee, or securitizer cannot provide rescission, they can provide the financial equivalent.  Liability of a creditor, assignee, or securitizer will apply for 3 years after consummation of the loan or, for a variable rate loan or a negative amortization loan, the earlier of 1 year after the loan resets or 6 years after consummation of the loan.  Liability will not apply to pools of loans, including the securitization vehicle, or investors in pools of loans.

Sec. 205. Defense to foreclosure.

When the holder (including the securitization vehicle) of a residential mortgage loan or anyone acting on such holder’s behalf initiates a judicial or non-judicial foreclosure, (1) a consumer who has a rescission right under this section may assert such right as a defense to foreclosure or counterclaim to foreclosure against the holder to forestall such foreclosure, or (2) if the foreclosure proceeding begins after the rescission right expires, the consumer may seek

actual damages plus costs against the creditor, assignee, or securitizer.  Such holder, anyone acting on behalf of such holder, or any other applicable third party may sell or assign a residential mortgage loan to any creditor, assignee, or a securitizer, or their designee, to effect a rescission or a cure.

Sec. 206. Additional standards and requirements.

Prepayment Penalties:  Prohibits prepayment penalties on loans that are not qualified mortgages as defined in section 203 (i.e., loans that are not “prime” loans), and requires that all remaining prepayment penalties expire three months before a loan resets.

Renters in Foreclosure:  In case of foreclosure, any successor in interest will take over the property subject to any bona fide lease made to bona fide tenant entered into before the notice of foreclosure.  Bona fide tenants without a lease will receive at least a 90-day notice before being required to vacate.  A lease or tenancy is bona fide if it is the result of arms-length transaction or if the rent is not substantially less than fair market rent.

Other Provisions:  Prohibits single-premium credit insurance and mandatory arbitration on mortgage loans.  Requires securitizers to reserve the right in any document or contract establishing pools of loans to obtain access to such loans and to provide for and obtain a remedy under this title.  Requires the servicer of a residential mortgage loan to provide annual notice (or whenever there is change in ownership of the loan) to the consumer of the identity of the creditor or assignee who should be contacted concerning the consumer’s rights with respect to the loan.  Prohibits negative amortization loans to a first-time borrower unless the creditor makes certain disclosures to the borrower and the borrower has received homeownership counseling from a HUD-certified organization or counselor.

Sec. 207. Rule of construction.

Except as otherwise expressly provided, no provisions of the new sections 129A and 129B added by this Act will be construed as superseding, repealing, or affecting any duty, right, obligation, privilege, or remedy of any person under any other provision of TILA or any other provision of Federal or State law.

Sec. 208. Effect on state laws.

The provisions of section 204 will supersede any State law that provides additional remedies against any assignee, securitizer, or securitization vehicle, and the remedies in section 204 will constitute the sole remedies against any assignee, securitizer, or securitization vehicle for a violation of section 201 or 202 (reasonable ability to repay and net tangible benefit requirements) or any other State law arising out of or relating to the specific subject matter of section 201 and 202.  No provision of this section will be construed as limiting the application of any State law against a creditor, or the application of any State law against any assignee, securitizer, or securitization vehicle, that does not arise out of or relate to, or provide additional remedies in connection with the specific subject matter of section 201 or 202.

Sec. 209. Regulations.

Regulations under this title will be promulgated within 12 months of the enactment of

this Act, and take effect no later than 18 months after the enactment.

Sec. 210. Amendments to civil liability provisions.

Doubles the amount of certain statutory civil liability penalties currently applicable under TILA.  Extends the statute of limitations from one year to three years.

TITLE III-HIGH-COST MORTGAGES

Amends the Truth in Lending Act to provide the following:

Sec. 301.  Definitions Relating to High-Cost Mortgages.

Expands the scope of HOEPA to also cover purchase money loans and open-end loans.  Codifies the existing Federal Reserve standard for the APR trigger which is set at 8% above comparable Treasury securities for first mortgages and Treasuries plus 10% for subordinate mortgages.  Lowers the points and fees trigger (total points and fees payable in connection with the loan transaction) from 8% to 5% for most loans.  The points and fees trigger stays at 8% for loans secured by a dwelling that is personal property.  Establishes a third trigger for loans with prepayment penalties that exceed 2% or 36 months duration.  Expands the definition of points and fees to include all compensation paid directly or indirectly by a consumer or creditor to a mortgage broker from any source (including table-funded transactions), certain insurance premiums, prepayment penalty charges under the loan, and prepayment penalties actually charged in a refinance by the original creditor or the original creditor’s affiliate.  Excludes certain bona fide discount points and prepayment penalties (up to 2 points for near-market interest rate loans) from the determination of the amount of points and fees that trigger HOEPA protections.

Sec. 302.  Amendments to Existing Requirements for Certain Mortgages.

Prohibits prepayment penalties on HOEPA loans with principal amounts below the FHA loan limit for a given geographical area.  Prohibits balloon payments on high-cost mortgages unless the payment schedule is adjusted to the seasonal or irregular income of the consumer.  Provides additional high-cost mortgage “ability to repay” protections.  Creditors are allowed to consider a number of factors including current and expected income, current obligations, and employment status (rebuttable presumption of ability to repay if, at the time the high-cost mortgage is consummated, the consumer’s total monthly debts do not exceed 50% of monthly gross income).

Sec. 303.  Additional Requirement for Certain Mortgages.

Prohibits creditors from (1) encouraging that borrowers default on an existing loan when refinancing such existing loan with a high-cost mortgage, (2) charging multiple late fees for a high-cost mortgage on the same delinquent payment and caps any given late fee at 4%, (3) unilaterally accelerating a high-cost mortgage, (4) directly or indirectly financing points and fees for high-cost mortgages (the restriction applies to prepayment penalties if the creditor or an affiliate is the noteholder of the note being refinanced), (5) structuring a high-cost mortgage to evade HOEPA protections, (6) modifying or deferring fees unless they can be proven beneficial to the consumer, (7) providing a high-cost mortgage to a consumer unless the creditor has received a certification that the borrower received pre-loan counseling from a HUD-approved

entity, and (8) knowingly or intentionally engaging in flipping in connection with a high-cost mortgage.  Requires that creditors and servicers disclose and provide free access to payoff amounts.

Sec. 304. Amendment to provision governing correction of errors.

Permits creditors to correct non-bona fide errors within 30 days of the loan closing and prior to the institution of any action.  Permits creditors to correct bona fide errors within 60 days of the creditors’ discovery or receipt of notification and prior to the institution of any action.  A creditor may correct an error by making the loan satisfy the applicable requirements of TILA (including requirements of this Act) or, in the case of a high-cost mortgage, changing the terms of the loan so the loan is no longer a high-cost mortgage.

Sec. 305.  Regulations.

Requires the Federal Reserve Board to implement regulations under this title within six months of enactment.

TITLE IV-OFFICE OF HOUSING COUNSELING

Sec. 401.  Short title.

This title may be cited as the “Expand and Preserve Home Ownership Through Counseling Act.”

Amends the Department of Housing and Urban Development Act to provide the following:

Sec. 402. Establishment of Office of Housing Counseling.

Establishes the Office of Housing Counseling under HUD, headed by a Director appointed by the Secretary.  The Director will be responsible for all homeownership and rental housing counseling programs for HUD, and will establish, coordinate and administer all regulations, requirements, standards, and performance measures under the programs that relate to housing counseling, homeownership counseling, mortgage-related counseling, and rental housing counseling.  The Director will establish rules for (1) counseling  procedures, (2) carrying out all other related functions, including establishing a toll-free number, (3) information booklets, (4) carrying out the certification of counseling service providers, (5) providing assistance in the provision of counseling services, (6) carrying out functions the Secretary deems appropriate with regard to unscrupulous lending practices in the home mortgage business, (7) support the advisory committee created under this act, (8) collaborate with community-based organizations, and (9) provide for building capacity to provide housing counseling services in areas that lack sufficient services.  The Secretary will appoint an advisory committee composed of no more than 12 individuals representing all aspects of the mortgage and real estate industry, including consumers.  Members appointed by the Secretary will serve 3-year terms, except that initially, four will be appointed for 1-year terms and four will be appointed for 2-year terms.  The Secretary may reappoint members at his discretion.  Members will not be paid, but may receive travel expenses.  The advisory committee has no role in reviewing or awarding housing counseling grants.  Counseling services will cover the entire process of homeownership, including refinancing and foreclosure.

Sec. 403. Counseling procedures.

The Secretary will establish, coordinate, and monitor all HUD counseling procedures, including requirements, standards, and performance measures that relate to homeownership and rental housing.  “Homeownership counseling” is defined as counseling related to homeownership and residential mortgage loans.  “Rental housing counseling” is defined as counseling related to rental of residential property, which may include counseling regarding future homeownership opportunities and providing referral for renters and prospective renters to entities providing counseling.  The Secretary will establish standards for materials and forms used by counseling service providers, and provide for the certification of various computer software programs for consumers to use in evaluating different residential mortgage loan proposals.   The mortgage software system will take into account (1) the consumer’s financial situation and the cost of maintaining a home, including insurance, taxes, and utilities, (2) the amount of time the consumer expects to remain in the home or expected time to maturity of the loan, and (3) any other factors to assist the consumer in making choices during the loan application process.  The certified software programs will be used to supplement, not replace, housing counseling, and the software programs initially will be used only in connection with the assistance of certified housing counselors.  The Secretary will develop, implement, and conduct national public service multimedia campaigns to make potentially vulnerable consumers aware of the existence of homeownership counseling.  Appropriations not to exceed $3 million are authorized for national public service multimedia campaigns for fiscal years 2008, 2009, and 2010.  The Secretary will provide advice and technical assistance to States, units of local government, and non-profit organizations regarding provisions of counseling services.

Sec. 404. Grants for housing counseling assistance.

Provides that the Secretary will make financial assistance available for homeownership or rental counseling to States, units of local government, and non-profit organizations.  The Secretary will establish standards and guidelines for assistance eligibility.  Appropriations of $45 million are authorized for each of fiscal years 2008 through 2011 for this program.

Sec. 405. Requirements to use HUD-certified counselors under HUD programs.

Requires any homeownership counseling or rental housing counseling administered by HUD to be provided solely by organizations or counselors certified by the Secretary.

Sec. 406. Study of defaults and foreclosures.

Not later than 12 months after the enactment of this legislation, the Secretary will submit to Congress a preliminary report on the root causes of default and foreclosure of home loans and the role of escrow accounts in helping prime and nonprime borrowers to avoid defaults and foreclosures.  No later than 24 months after the enactment of this legislation, the Secretary will submit a final report regarding the results of the study, which will include any recommended legislation relating to the study and recommendations for best practices and for a process to identify populations that need counseling the most.

Sec. 407. Definitions for counseling-related programs.

Provides definitions of “nonprofit organization,” “State,” and “unit of general local

government.”

Sec. 408. Updating and simplification of mortgage information booklet.

Directs the Secretary to prepare a booklet at least once every 5 years to help consumers applying for federally related mortgage loans to understand the nature and costs of real estate settlement services.  Identifies specific topics in the information booklet that the Secretary must include in plain and understandable language, including explanation of (1) costs incident to real estate settlement or federally related mortgage loan (including at a minimum balloon payments, prepayment penalties, and trade-off between closing costs and the interest rate over the life of the loan), (2) the uniform settlement statement, (3) unfair lending practices and unreasonable or unnecessary charges to be avoided by the prospective buyer with respect to a real estate settlement, (4) questions that the consumer should ask about a loan, (5) the right of rescission, (6) variable rate mortgages, (7) home equity line of credit, (8) the availability and the value of homeownership counseling services, (9) escrow accounts, (10) available choices for providers of incidental services; (11) the buyer’s responsibilities, liabilities, and obligations; (12) appraisals, and (13) HUD brochure regarding loan fraud.

Related Posts:

1. HR 3915 Manager’s Amendment Summary
2. HR 3915 Reform Act Section by Section Summary
3. HR 3915 Mortgage Reform Act of 2007

Section-by-Section Summary

TITLE I—MORTGAGE ORIGINATION

Sec. 101. Definitions.
Establishes definitions for various terms, including:  “mortgage originator,” “qualified nationwide registration regime,” “qualifying state licensing law,” “residential mortgage loan,” and “securitizer.”

Sec. 102. Residential mortgage loan origination.
Provides that all mortgage originators (including mortgage brokers and depository institutions that originate mortgages) will be subject to a federal duty of care that requires (1) licensing and registration under State or Federal law, (2) diligently working to present consumers with a range of residential mortgage loan products appropriate to the consumer’s existing circumstances, (3) making full, complete, and timely disclosures to consumers, (4) certifying to creditors compliance with mortgage origination requirements under this section, and (5) including in all loan documents the unique identifier of the mortgage originator provided by the qualified nationwide registration regime.  This subsection expressly does not create an agent or fiduciary relationship, but mortgage originators are free to become an agent or a fiduciary if they so desire.  HUD, OCC, OTS, and FDIC, in consultation with FTC, will jointly prescribe regulations to further define the federal duty of care.

Sec. 103. Anti-steering.
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.  HUD, OCC OTS, and FDIC, in consultation with FTC, will jointly prescribe regulations to prohibit mortgage originators from steering any consumer to a mortgage loan that is not in the consumer’s interest (such as a loan with predatory characteristics), and will seek to ensure that such regulations meet the conditions set forth in the legislation.  However, nothing in this subsection should be construed as limiting the ability of a mortgage originator to sell residential mortgage loans to subsequent purchasers, or restricting a consumer’s ability to finance origination fees if they were disclosed to the consumer and do not vary with the consumer’s decision to finance such fees.

Sec. 104. Licensing and registration of mortgage originators.
Requires all mortgage originators to be licensed and registered pursuant to qualifying State licensing law or an equivalent Federal banking regime.  If States do not pass qualifying laws that meet the standards set forth in the bill, then HUD will promulgate regulations requiring mortgage brokers in such States to act “solely in the best interest” of the consumer.  States will have two years from the date of enactment of this Act to pass qualifying State licensing laws, and HUD will have the authority to extend this deadline by six months for individual States acting in good faith.

Sec. 105. Enforcement.

Provides that a cause of action will exist under section 130(a) and 130(b) of TILA for a mortgage originator’s failure to comply with this section.  The maximum liability of a mortgage originator for violation of this section will not exceed three times the total amount of mortgage originator fees, plus the consumer’s costs including reasonable attorney’s fees.

Sec. 106. Regulations.

Except for the 24-month period (and possible 6-month extension) set forth in section 104 regarding HUD licensing and registration regime, regulations under this title will be promulgated within 12 months of the enactment of this Act, and take effect no later than 18 months after the enactment.

TITLE II—MINIMUM STANDARDS FOR ALL MORTGAGES

Sec. 201. Ability to repay.
Provides 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).  OCC, OTS, and FDIC, in consultation with FTC, will jointly prescribe regulations regarding this provision.  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.  In making such a determination for nonstandard loans (adjustable rate loans, interest-only loans, and negative amortization loans), creditors will follow additional guidance as set forth in the legislation.  To calculate monthly payments for principal and interest, creditors will make certain assumptions set forth in the legislation (including that the interest rate is a fixed rate equal to the fully indexed rate at the time of the loan closing).

Sec. 202. Net tangible benefit for refinancing of residential mortgage loans.
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.  OCC, OTS, and FDIC, in consultation with FTC, will jointly prescribe regulations further defining the term “net tangible benefit.”

Sec. 203. Safe harbor and rebuttable presumption.
Creditors and assignees may make the presumption, which may only be rebutted against creditors, that the minimum standards (reasonable ability to repay and net tangible benefit) are met for “qualified mortgages” and “qualified safe harbor mortgages.”  Qualified mortgages are prime loans with APRs that are not equal to or greater than 3% over comparable Treasuries and 175 basis points over the Federal Reserve H.15 rate for first lien loans, and 5% over comparable Treasuries and 375 basis points over the Federal Reserve H.15 rate for non-first lien loans.
Qualified safe harbor mortgages are loans with (1) documented consumer income, (2) underwriting process based on fully indexed rate (and taking into account taxes and insurance), (3) debt-to-income ratio not greater than 50% or some other percentage prescribed by regulation, (4) no negative amortization, (5) other requirements that may be established by regulation, AND (6) one of the following:  (i) fixed payment for at least 7 years,
or
(ii) for adjustable-rate loans, APR that varies less than 3% over the interest-rate index.  OCC, OTS, and FDIC will jointly prescribe regulations to carry out the purposes of this subsection and may make changes to these safeharbor provisions over time as products and lending practices evolve.

Sec. 204. Securitizer liability.
For loans that violate the minimum standards for reasonable ability to repay and net tangible benefits as set forth by regulation, a consumer has an individual cause of action against assignees, including securitizers, for rescission of the loan and the consumer’s costs.  An assignee/securitizer will not be liable for a loan that violates the minimum standards if the assignee/securitizer: (1) provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer, or (2) (a) has a policy against buying mortgage loans that are not qualified mortgages or qualified safe harbor mortgages and exercises reasonable due diligence to adhere to such policy through a adequate, thorough, and consistently applied sampling procedure in accordance with regulations that OCC, OTS, and FDIC will jointly prescribe and (b) has obtained representations and warranties from the seller or assignor of the loan regarding not selling or assigning loans that violate the minimum standards and takes reasonable steps to obtain the benefit of such representations or warranties.  Liability will not apply to pools of loans or investors in pools of loans.

Sec. 205. Defense to foreclosure.
A consumer who has the right of rescission may exercise such right when judicial or non-judicial foreclosure is initiated, and a third party may sell or assign a residential mortgage loan to an assignee, including a securitizer, to effect a rescission or a cure.

Sec. 206. Additional standards and requirements.
Prepayment Penalties:  Prohibits prepayment penalties on “subprime” loans (loans that are not qualified mortgages as defined in section 203), and requires that all remaining prepayment penalties expire three months before a loan resets.

Renters in Foreclosure:  In case of foreclosure, any successor in interest will take over the property subject to any bona fide lease made to bona fide tenant entered into before the notice of foreclosure.  Bona fide tenants without a lease will receive at least a 90-day notice before being required to vacate.

Other Provisions:  Prohibits single-premium credit insurance and mandatory arbitration.  Requires securitizers to reserve the right in any document or contract establishing pools of loans to obtain access to such loans and to provide for and obtain a remedy under this title.

Sec. 207. Amendment to provision governing correction of errors.
Permits creditors to correct non-bona fide errors within 30 days of the loan closing and
prior to the institution of any action.  Permits creditors to correct bona fide errors within 60 days of the creditors’ discovery or receipt of notification and prior to the institution of any action.  A creditor may correct an error by making the loan satisfy the applicable requirements of TILA (including requirements of this Act) or changing the terms of the loan so the loan is no longer a high-cost mortgage.

Sec. 208. Amendment relating to right of rescission.
Provides that a person is not barred from asserting a right of rescission after the expiration of the statute of limitation as a defense to a foreclosure action.

Sec. 209. Amendments to civil liability provisions.
Doubles the amount of civil liability penalty currently applicable under TILA.  Extends the statute of limitations from one year to three years.

Sec. 210. Rule of construction.
Except as otherwise expressly provided, no provisions of the new sections 129A and 129B added by this Act will be construed as superseding, repealing, or affecting any duty, right, obligation, privilege, or remedy of any person under any other provision of TILA.

Sec. 211. Regulations.
Regulations under this title will be promulgated within 12 months of the enactment of this Act, and take effect no later than 18 months after the enactment.

TITLE III—HIGH-COST MORTGAGES

Sec. 301.  Definitions Relating to High-Cost Mortgages.
Amends the definition of high-cost mortgage in HOEPA to also include open end lines of credit.  Codifies the existing Federal Reserve standard for the APR trigger which is set at 8% above comparable Treasury securities for first mortgages and Treasuries plus 10% for subordinate mortgages.  Lowers the points and fee triggers from 8% to 5% for most loans.  Establishes a third trigger for loans with prepayment penalties that exceed 2% or 30 months duration.  Expands the definition of points and fees to include all compensation paid directly or indirectly by a consumer or creditor to a mortgage broker from any source (including table-funded transactions), certain insurance premiums, prepayment penalty charges under the loan, and prepayment penalties actually charged in a refinance by the original lender or the original lender’s affiliate.  Excludes certain bona fide discount points and prepayment penalties (up to 2 points for near-market interest rate loans) from the determination of the amount of points and fees that trigger HOEPA protections.

Sec. 302.  Amendments to Existing Requirements for Certain Mortgages.
Prohibits prepayment penalties on HOEPA loans with principal amounts below the FHA loan limit for a given geographical area.  Prohibits balloon payments on high-cost loans unless the payment schedule is adjusted to the seasonal or irregular income of the consumer.  Provides additional high-cost loan “ability to repay” protections.  Creditors are allowed to consider a number of factors including current and expected income, current obligations, and employment
status (rebuttable presumption of ability to repay provided that the consumer’s total monthly debts do not exceed 50% of monthly gross income).

Sec. 303.  Additional Requirement for Certain Mortgages.
Prohibits creditors from (1) encouraging that borrowers default on an existing loan when refinancing such existing debt with a high-cost mortgage, (2) charging multiple late fees on the same delinquent payment and caps any give late fee at 4%, (3) unilaterally accelerating the loan, (4) directly or indirectly financing points and fees for high-cost mortgages (the restriction applies to prepayment penalties if the lender or an affiliate is the noteholder of the loan being refinanced), (5) structuring loans to evade HOEPA protections, and (6) making a high-cost loan to a consumer unless the creditor has received a certification that the borrower received pre-loan counseling from a HUD-approved entity.  Prohibits modification or deferral fees unless they can be proven beneficial to the consumer.  Requires that creditors and servicers disclose and provide free access to payoff amounts.

Sec. 304.  Regulations.
Requires the Federal Reserve Board to implement regulations under this title within six months of enactment.

Related Posts:

1. HR 3915 Manager’s Amendment Summary
2. HR 3915 Mortgage Reform Act of 2007
3. HR 3915 Mortgage Reform Bill – Full Text

Marc Savitt, President-Elect

National Association of Mortgage Brokers

on

“Legislative Proposals on Reforming Mortgage Practices”

Before the

House Financial Services Committee

United States Congress

Wednesday, October 24, 2007

Good morning Chairman Frank, Ranking Member Bachus, and Members of the Committee, I am Marc Savitt, President-Elect of the National Association of Mortgage Brokers (“NAMB”). Thank you for inviting NAMB to testify today on “Legislative Proposals on Reforming Mortgage Practices.” We appreciate this opportunity to share with you our views on the Mortgage Reform and Anti-Predatory Lending Act of 2007 (“H.R. 3915″).

NAMB is the only national trade association exclusively devoted to representing the mortgage brokerage industry, and as the voice of the mortgage brokers, NAMB speaks on behalf of more than 25,000 members in all 50 states and the District of Columbia. NAMB members are typically small business men and women, who adhere to a strict code of ethics and best lending practices when presenting consumers with an array of mortgage financing options to choose from. Mortgage brokers typically maintain business relationships with various lenders so they can offer a variety of loan products to their customers. Our members play a critical role in helping the American economy and in making the dream of homeownership a reality for American families.

I. Introduction

We take this opportunity to share with the Committee our longstanding view that abusive lending practices can and sometimes do occur throughout the entire mortgage marketplace, which includes originators, funding providers, servicers, affiliated companies, securitizers, and Wall Street investors.

However, addressing the manner in which individual loan officers present different loan programs to consumers and how consumers understand the features of the loan product they ultimately choose is a critical component of any reform effort. For this reason, we support the implementation and enforcement of minimum standards for all mortgage originators; the creation of a national registry to track and remove bad actors from the industry; improved enforcement of prohibitions against deceptive and misleading advertising of mortgage products; reformed mortgage disclosures; and efforts to improve consumer understanding of the mortgage process and products available in the marketplace.

We appreciate the all originator construct of H.R. 3915, but we must urge the Committee to exercise caution when contemplating the transfer of excessive risk to originators, lenders, and securitizers, because undue risk transference will only lead to higher prices and a lack of available credit for deserving consumers.

II. Title I (Mortgage Origination)

NAMB shares the Committee’s concerns about responsible lending and, in particular, the need to implement uniform minimum standards for mortgage originators, regardless of corporate organization or structure. NAMB supports removing bad actors from the mortgage marketplace while at the same time preserving access to mortgage credit for those consumers who qualify. We applaud the uniform approach taken in H.R. 3915, but we do have some concerns regarding several elements of the bill and its practical implications for consumers and the industry.

1. A Federal Duty of Care for All Mortgage Originators

Since 2002, NAMB has consistently advocated for more stringent standards for all loan originators to protect consumers and curb abusive lending practices in the mortgage industry. We feel strongly that the value of an all originator approach, as in H.R. 3915 and H.R. 3012, lies in the uniformity of treatment of competitors in the mortgage industry. The acts of originating, funding, selling, servicing, and securitizing may all be conducted separately and independently, or may be engaged in collectively under one corporate structure or through affiliated business arrangements. This is why we believe it is important for consumer protections to relate to the function, as opposed to the structure of an entity. Consumers deserve the same level of protection no matter where they choose to obtain a mortgage loan.

Recent events in the mortgage market offer clear examples of why all mortgage originators should be subject to uniform minimum standards. The mortgage market of the 21st century has evolved in conjunction with the burgeoning growth of the secondary market for mortgages, but the laws, regulations and oversight of this market have lagged behind to the severe detriment of consumers. Today, any legislative, regulatory, or other governmental effort must account for the fact that the mortgage market is vastly different from the one that existed 20 years ago.

The traditional, “bank-centered,” model of mortgage credit involved institutions originating, funding and holding the risk of credit in a mortgage portfolio, which was overseen by in-house risk management and monitoring procedures. Credit and market innovations, such as automated underwriting and lower relative prices, have separated these functions, allowing for greater efficiencies, diversification, spreading of risk, and increased liquidity. Accompanying these innovations were, of course, corporate structure and operational changes that influenced how customers obtained their loans, as well as how these loans were funded, managed and serviced.

Historically a lender was an entity that used its own money to originate and fund transactions. The loan was not sold, but rather kept in portfolio as an asset, and was serviced by the originating lender. This lender maintained a direct relationship with the borrower from the time of origination through funding and collection of the loan. Today, this is no longer the case. It is now common for originator entities and

individuals to act in various capacities, whether in a true creditor capacity (lender), a correspondent lender capacity,1 a table funding capacity,2 a broker capacity (despite the fact that their state-issued business license may say “mortgage lender”), or some combination thereof.

We do not deny that differences exist between depository and non-depository institutions, both in terms of their business models and how they are regulated, primarily because some of these entities are involved in businesses other than mortgage lending, namely banking. However, when it comes to the origination of mortgage loans, these entities are virtually indistinguishable, particularly in the eyes of consumers, and should be held to the same minimum standards.

The reality of today is that any legislative proposal should take into account how the mortgage market has evolved in relation to the burgeoning growth of the secondary market for mortgages. As was revealed in the recently released Government Accountability Office (“GAO”) report on Recent Default and Foreclosure Trends for Home Mortgages,3 the problems facing the mortgage market are not exclusively attributable to one distribution channel and are the result of a combination of factors including: origination, underwriting, servicing, debt collection, the secondary market, securitization, and the bond rating system. We believe this report illuminates the need to address all market competitors, and we again applaud the balanced and even approach taken in the legislative proposals being discussed here today.

2. Licensing & Registration for All Mortgage Originators

The growth that has occurred in the mortgage finance industry has led to a corresponding rise in the number of uneducated and unlicensed mortgage originators, and it has become clear that these unlicensed and uneducated bad actors have found homes in all segments of the industry. Over the past seven years, the mortgage market has grown due to low interest rates, investor speculation, rising home values, the creation of new and innovative loan products, the growth of the secondary market for mortgage products, and the increased sophistication of securitizers. Additionally, market demand for more originators lead to a rapid rise in employment, often at the expense of a knowledgeable and responsible workforce. In a rush to hire, standards were loosened by some to achieve or enhance their growth. Without strong standards, this growth went unregulated and unchecked, resulting in a largely under-educated and unscreened originator workforce. Now, we are experiencing a contraction. To ensure we are not doomed to repeat this cycle again, it is critical to establish strong national standards that apply to all originator entities, regardless of size, corporate organization or structure.

When consumers are sitting across the table from a mortgage originator, they generally cannot distinguish one distribution channel from another. From the perspective of the consumer, there is essentially no difference between banks, lenders, and brokers when it comes to originating mortgage loans. Moreover, there is no reason to distinguish one distribution channel from another when each is engaged in essentially the same activity. It is not in the consumers’ best interest to draw artificial lines between entities based

1 When a lender is engaging in any one of these types of transactions and is offering multiple product lines of other lenders, that lender is acting as a correspondent lender. 2 A correspondent lender can also engage in a table-funded transaction. Table funding is the origination of a loan by a correspondent lender with a simultaneous transfer or sale of the loan at the time of funding to a lender. In a table-funded transaction, the originating company is a creditor for purposes of TILA and therefore, state and federal agencies treat them as lenders. However, The Department of Housing and Urban Development (“HUD”) has determined that table-funded transactions are mortgage broker transactions for purposes of the RESPA, subjecting these transactions to the YSP disclosure requirement. Therefore, the correspondent lender who table funds is essentially both a lender and a broker. 3″Information on Recent Default and Foreclosure Trends for Home Mortgages and Associated Economic and Market Developments,” United States Government Accountability Office, October 16, 2007.

upon their size, structure, or place in the federal-state regulatory dichotomy. There is absolutely no relationship between the size or structure of a mortgage company and the quality of its loan officers. Regulating only small segments of a larger industry leaves cracks for bad actors to continually slip through, as evidenced by the ease of un-checked movement of loan officers from one employer to another in today’s market.

The Watters v. Wachovia Supreme Court decision created a bifurcated regulatory landscape in the mortgage industry. Two separate mortgage camps now exist: those operating solely under federal regulation, versus those in the ‘non-bank camp,’ which are subject to both federal and state oversight. We have already begun to see some of the effects of the Watters decision, as non-bank mortgage operations looking for shelter from this layered oversight are being solicited by national banks to use their federal charter to bypass all state licensing and consumer protection regulations. Moreover, as many non-bank lenders continue to downsize and shut-down mortgage operations, countless loan officers are being terminated, and we are now seeing these individuals receive job offers from federally-chartered institutions that are marketing themselves by saying how easy it is for their loan officers to make loans and avoid state licensing requirements designed to protect consumers. The Watters decision has created an imbalance in the mortgage industry oversight scheme that regulates a market vastly different from the one that existed 20 years ago, at the advent of the secondary mortgage market.

More must be done to increase professional standards for all mortgage originators. Since 2002, NAMB has advocated strongly that a minimum level of education and mandatory testing for all loan officers, regardless of employment, must be a central component of any effective solution to the problem of abusive lending. Education and testing of every mortgage originator helps to ensure that consumers will receive accurate and consistent product information that will allow them to make an informed decision about different loan financing options available in the market. To ensure all mortgage originators remain knowledgeable and competent to address customer concerns, NAMB also supports mandatory continuing education and professional ethics training. Further, NAMB believes that all mortgage originators should be subject to a federal criminal background check to prevent bad actors from entering or remaining in the industry.

The application of these minimum professional standards to all originators will create a mortgage market where consumers are free to shop and compare mortgage products and pricing across distribution channels without fear or confusion. Although it continues to be suggested by some that requiring minimum standards for all loan originators is unnecessary, we strongly disagree. The creation and implementation of a national minimum standard for every mortgage originator is neither burdensome nor duplicative of existing oversight and regulation. Such a standard, when implemented across every distribution channel, raises the bar for anyone currently failing to meet it, and imposes no greater restrictions on any state or entity whose requirements already surpass it.

For these reasons, we support the all originator concept contained H.R. 3915. It is a balanced and even approach that includes every mortgage originator who will sit down with a consumer and help them through the application and origination process, leaving no refuge within the industry for bad actors.

3. Creation of a National Registry

NAMB has long supported the establishment of a national registry, provided: (1) it is governed by a federal agency such as the FTC, the Federal Reserve Board, or HUD; (2) the federal government requires every individual mortgage originator, including loan officers working for federal and state-chartered banks and lenders, credit unions, and mortgage brokers to register; (3) every individual pays a fee to be in the registry; and (4) the fee is used to cover operational costs for the registry, create funds earmarked for additional enforcement of mortgage laws, and assist ongoing consumer financial literacy programs.

Today, a single national system to collect, store and track information on all mortgage originators, whether state or federally regulated, does not currently exist. The creation and establishment of a national registry would help to identify and track bad actors operating within the ranks of the mortgage industry. We believe individuals who choose to work in the mortgage industry should be held accountable for their actions. If any mortgage originator is found guilty of improper conduct, he or she should be kicked out of the industry permanently.

A national registry that includes all originators will aid significantly in the effort to fight mortgage fraud uniformly across all segments of the industry, and will stop bad actors from remaining in or entering the industry. Additionally, a national registry of all mortgage originators could also serve as a clearinghouse for complaints against mortgage originators, regardless of whether they are state or federally-regulated, thus aiding consumers who often do not know who to call or where to turn when experiencing a problem with their mortgage originator.

Without universal inclusion in the registry however, bad actors will remain free to move, unchecked, from one entity to another and one community to another without any interference, and consumers will continue to bear the burden of trying to identify the appropriate regulator to contact when there is a problem. A national registry will afford all current and prospective homebuyers protection from predatory lenders, who should be given nowhere to go but out of the industry entirely. We support the inclusive language in H.R. 3915, and we strongly urge the Committee to ensure that no market participant be excluded from the registry as the bill is debated and moved through the legislative process.

4. Additional Specific Disclosures.

NAMB believes that consumers who understand the mortgage process are better able to make informed decisions about loan products, features, and pricing options. We also believe that improved and mandatory disclosures will help expose the activities of certain unscrupulous mortgage originators who try to shield themselves from detection by keeping consumers uninformed. NAMB appreciates the inclusion of language in the bill that calls for improved disclosures to consumers early on in the mortgage process and requires mortgage originators to disclose their relationship with the consumer.

The proliferation of affiliated business arrangements and the blurring of once clear lines of delineation between distribution channels have made it more difficult than ever for consumers to understand the role that their mortgage originator will play in the loan transaction. NAMB believes consumers will benefit from a clear, upfront, and uniform disclosure of the role of the mortgage originator. To enhance consumers’ ability to comparison shop, a full and fair disclosure of the mortgage originator’s role should be required to be given to borrowers at the onset of the mortgage shopping experience. We cannot emphasize enough the importance of requiring uniform disclosures to be given to consumers in all mortgage transactions. Anything less will confuse consumers and risk causing them to select a higher cost mortgage.

The Federal Trade Commission’s February 2004 Staff Report – “The Effect of Mortgage Broker Compensation Disclosure on Consumers and Competition: A Controlled Experiment” – illustrates how the lack of uniform disclosures can actually result in increased cost for consumers. The staff report on HUD’s 2002 proposed RESPA rule, which required certain disclosures by mortgage brokers only, stated that when such disclosures were tested on consumers, they were likely to “confuse consumers, cause a significant proportion to choose loans that are more expensive than the available alternatives, and create substantial consumer bias against broker loans, even when broker loans cost the same or less than direct lender loans.”

Since 1998, NAMB has urged the U.S. Department of Housing and Urban Development (“HUD”) to adopt a role of the mortgage originator disclosure as part of the required disclosures under the Real Estate Settlement Procedures Act (“RESPA”); however, to date, HUD has failed to implement any such standard. Some states have adopted this as a requirement, but this is still not enough.

We strongly believe that a simple, straight-forward disclosure of the mortgage originator’s role, will eliminate any confusion on the part of consumers and strengthen consumers’ bargaining position when shopping for a mortgage.

A direct analogy may be drawn to the real estate brokerage industry, which is also largely state-regulated. Not unlike mortgage originators, real estate brokers and agents deal with different parties to a transaction (buyers and sellers) in a variety of different capacities. Real estate brokers and agents may enter into an agency relationship with either a buyer or a seller; or they may function in a limited agency capacity for both the buyer and the seller. Alternatively, they may elect not to enter into any agency relationship at all and act exclusively as an intermediary. We believe that mortgage originators can operate under a similar model, where they choose, along with their customers, to enter into an agency relationship with either the lender or the borrower; serve as the limited agent for both the lender and the borrower; or, act as an intermediary only in the mortgage transaction.

Because of the complex and sometimes uncertain nature of the relationship between originators and borrowers, we believe consumers will benefit from a clear, concise, and mandatory disclosure of that relationship early in the mortgage shopping stage. In addition to choosing the loan product and pricing options that they prefer, consumers should be given the opportunity to make an informed choice of whether to shop around or work with a mortgage originator who is willing and able to act as their agent in the transaction. Requiring all originators to clearly and accurately inform consumers of their role in the transaction will enhance consumers’ ability, and perhaps their desire, to comparison shop and find a loan product and originator they are comfortable with.

5. Anti-Steering

Title I includes an anti-steering provision, which applies to all mortgage originators. This provision specifically prohibits anyone from paying and any mortgage originator from receiving incentive compensation that is based on or varies with the terms of a loan (including yield spread premium (“YSP”)). While we support disconnecting compensation from the origination of specific loan products or features of those products in an effort to address steering, we have grave concerns over the practical, and perhaps unintended, consequences of this provision on the industry as a whole, but particularly the small business broker channel and the consumers that it serves.

For example, a stated objective of several fair lending laws is to ensure affordable credit is available to low and moderate income borrowers and that lending occurs in outlying communities that are traditionally underserved by large lenders and banks. The government clearly wants to encourage lending to low and moderate income individuals and underserved communities, as evidenced through laws such as the Community Reinvestment Act. This paradox in housing objectives must be addressed. We should be careful to avoid the unintended consequence of negatively impacting lending to deserving low and moderate income borrowers or underserved communities. This is especially necessary given the current market climate where lending to these market segments is already suffering due to the credit crunch.

We urge the Committee to amend and clarify the anti-steering language included in Title I to make clear that mortgage originators are not prohibited from earning indirect compensation. The financing of points, fees, and indirect originator compensation, regardless of what it is called, helps consumers by lowering the cash needed to close a mortgage transaction while compensating the originator for his or her services.

The use of indirect compensation has proven to be a vital tool for first-time homebuyers, and critically important in helping countless consumers purchase a home or manage their finances.

Today, most consumers shop for a loan asking for a loan rate at zero points. In this scenario, the consumer is asking to finance into the loan rate the ‘origination fee’, a term of art understood in the market to refer to points paid upfront to originate the loan. When the origination fee is financed through the interest rate it becomes what is known in the market as indirect compensation, which is paid by the wholesaler, retailer or investor/secondary market to the mortgage originator (i.e., yield spread premium, service release premium, or gain on sale). This zero point loan is the “typical loan” that represents somewhere between 85 and 90% of the market because it has clear benefits to the consumer: (1) it lowers the amount of cash needed to bring to closing; and (2) may actually decrease the total origination fee paid on the loan if a borrower remains in the home only 5 to 7 years, or refinances within that time period.

Indirect compensation is how mortgage originators get paid for their loan origination services when a consumer does not want to pay any points, or is able to pay only some of the fees upfront. Indirect compensation is also a legitimate and legal way for borrowers to forgo paying their closing costs upfront and instead, finance those costs through the interest rate. When the consumer chooses not to pay any origination fees or closing costs upfront, they are receiving what is known as a no-cost and/or no-fee loan. Again, zero point and no-cost/no-fee loans are offered widely by both broker and retail lender channels and made available because of the indirect compensation structure that currently exists.

Thus, indirect compensation is beneficial for many consumers who are ready to own a home but have to overcome the hurdle of significant closing costs, or for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate. Choosing to finance closing and origination costs through the rate allows borrowers to purchase and start building wealth through their home without requiring significant outlay of cash at the onset of the loan.

As stated above, every mortgage originator that does not keep loans in portfolio earns this indirect compensation – it’s just called something different for each competing originator entity. YSP is a payment by a wholesaler to a retailer in a broker transaction in return for operating costs absorbed, services performed, closing costs financed, if applicable, and/or the value of the loan. Service release premium (“SRP”), or gain on sale, is what a lender, banker, or wholesaler receives as payment from an investor – again, for costs absorbed, services performed, the financing of any closing costs, and/or the value of the loan.

Indirect mortgage originator compensation has existed from the time loan origination services expanded out of the S&Ls and the banking industry moved away from keeping loans in portfolio. YSP came to the forefront in 1992 because of a HUD ruling under the Real Estate Settlement Procedures Act (“RESPA”). This ruling exclusively required mortgage broker transactions (those that do not fund and close loans in their name or those that table-fund) to disclose YSP on the good faith estimate (“GFE”) and again on the HUD-1. As a result, the only real difference that exists in today’s market between SRP, gain on sale and YSP is that YSP is the only form of indirect compensation that is currently required to be disclosed, both on the GFE and again at closing

This artificial line, drawn by HUD in 1992 and based on ‘industry jargon’ and entity structure, rather than function, has shifted intense focus on YSP, while shielding SRP and gain on sale from similar scrutiny. This is despite the fact that prior to the 1992 HUD ruling all three were considered one in the same – namely, indirect compensation paid to the originator by either the lender or the investor/secondary market in return for services performed and the value of the loan.

Any provision that intends, or is interpreted to intend, to ban indirect compensation will have a detrimental impact on the marketplace, eliminating cost-effective loan options for thousands of consumers and increasing costs significantly. In addition, any provision that intends, or is interpreted to intend, to ban only the broker’s compensation will destroy small business mortgage originators in this country, resulting in fewer market participants, less competition, and ultimately higher prices for consumers. With small business mortgage originators unable to earn indirect compensation, they will be prevented from assisting any consumer who chooses or is unable to come to the closing table with anything less than 20% down payment and cash for full closing costs and origination fees. Consumers looking for a zero point loan, or a no-cost/no-fee loan, will be forced to turn to the banks, placing those entities in a market position to charge the consumer even more for origination services. Furthermore, differential treatment of YSP will simply create a market distortion, pushing brokers to get a wholesale lines of credit, thereby enabling mortgage brokers to earn a SRP rather than YSP, similar to their industry counterparts.

We do not believe it is the Committee’s intent to legislatively pick winners or losers in a fiercely competitive marketplace or further disadvantage small business in the mortgage industry. We also do not believe it is the Committee’s intent to disadvantage the very consumers who are most in need of greater access to affordable credit. NAMB looks forward to continuing to work closely with the Committee on this issue, and we hope the Committee will consider revising the language in Title in recognition of the important role that indirect compensation plays in helping consumers become homeowners.

6.  Requiring Mortgage Originators who Advertise the “Best” Deal to Actually Deliver the Best Deal to their Customers

NAMB believes in strengthening prohibitions against the deceptive marketing and advertising of mortgage products. Last month, the Federal Trade Commission (“FTC”) warned over 200 mortgage lenders, brokers, and media outlets that some ads appearing in print and online may be in violation of federal law. The FTC noted that “many mortgage advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story – for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period. Homeownership is the American dream, but it can become a nightmare for consumers who don’t have the information they need to understand the terms of their mortgage.”4

We support the efforts being undertaken by the FTC and we urge all state and federal regulators to strengthen and increase enforcement actions against any party involved in the deceptive advertising or marketing of mortgage loan products or services to consumers.

While we support measures designed to ensure truthful and clear advertising to consumers, we must emphasize that what is “best” depends upon three inter-related concepts: product availability, price, and service. Focusing solely on a price of a product may not yield the “best” result for a consumer. Only the consumer can determine the “best” combination of factors that fit their needs. The consumer is the decision maker, not the mortgage originator.

Therefore, it is imperative that provisions in this bill that address the interests of the consumer be crafted in a manner that ensures that the integrity of the consumer decision-making process remains intact. Consumers currently enjoy the freedom and responsibility to choose their own mortgage products, take advantage of the competitive marketplace, shop, compare, ask questions, and expect answers. Consumers are and must remain the ultimate decision makers regarding the product, price, and services purchased in

4″FTC Warns Mortgage Advertisers and Media That Ads May Be Deceptive,” FTC Press Release, September 11, 2007, quoting Lydia Parnes, Director, FTC Bureau of Protection.

conjunction with mortgage financing. Selecting a mortgage is a very personal choice, and only the consumer can determine whether a particular loan product is “suitable” for his or her financial needs and goals, or if it might be in his or her “best” interest to continue shopping.

7. Surety Bond or Net Worth Requirement

We are supportive of uniform national standards for all mortgage originators that will increase accountability and professionalism in our industry, however, we believe requiring an unreasonably large surety bond or unrealistically high net worth will severely disadvantage small businesses, without providing any real benefit to consumers. We support the concept of a required surety bond for all mortgage originators, and appreciate that the language in H.R. 3915 would not require originators to satisfy both a surety bond and net worth requirement. Recognizing the clear burden that an unreasonably large bond or net worth requirement would have on small business originators, we believe that a $50,000 bond is adequate, provided that number is scaled up to $100,000 for larger volume originators. A $50,000 bond requirement will provide sufficient protection for consumers and the market, while not severely disadvantaging small businesses.

Although it has been suggested by some that a minimum net worth and capital requirement should be imposed on all mortgage market participants, regardless of business activities or size, as a measure of stability and accountability in the market, we have witnessed first-hand that such requirements do little to protect consumers or the market.

Net worth is illusory. Many (large) lending companies that were once viewed as financially solid are bankrupt and gone, proving that capital and net worth requirements are ineffective indicators of a mortgage originator’s ability to service or make the consumer whole. A financial statement provides no assurance at all that an originator will maintain their net worth; it simply provides a snapshot and can easily disappear. Imposing capital and net worth requirements does not enhance lending standards, but rather merely promotes market shares among competing channels. Capital and net worth requirements succeed in erecting barriers to small businesses entering the market, place an unfair and undue burden on them, and inhibit competition, leaving consumers with fewer choices and increased costs, while failing to offer any real protection to consumers now or in the future.

In short, size and wealth do not automatically equate to honesty and competence. This fact must guide any legislative or regulatory action.

III. Title II (Minimum Standards for All Mortgages)

NAMB strongly supports the all originator construct of H.R. 3915, and we believe it is important for underwriters to make a reasonable assessment of a borrower’s ability to repay a mortgage loan at the time such a loan is consummated. We also support the additional standards and requirements included in Title II, which prohibit certain prepayment penalties, single-premium credit insurance, and mandatory arbitration. However, we believe the regulators must be cautious when crafting corresponding rules, so that they do not unintentionally expose consumers to the risk of being arbitrarily rejected for credit when it is needed.

Although we are supportive of the ability to repay and net tangible benefit requirement included in H.R. 3915, objective parameters are critical because we do not feel that consumers will ultimately be served by a standard that allows for a wide range of subjectivity. We fear a lack of objective parameters could have numerous unintended consequences, leading to many consumers being shut out of the mortgage market without justification. The market has already adjusted, and we are concerned that some of the language in

Title II of H.R. 3915 risks harming consumers and possibly exacerbating the current problems in the real estate market.

IV. Title III (High-Cost Mortgages)

While NAMB is supportive of the all originator approach in H.R. 3915, we are extremely concerned that specific provisions in Title III will only result in further harm to many consumers who are currently in the most need of credit. We urge the Committee to consider deleting Title III in its entirety, at least until the market has an opportunity to stabilize.

1. Points and Fees Threshold

Section 301 would reduce the “points and fees” trigger for “high-cost loans” under the Home Ownership and Equity Protection Act (“HOEPA”) from 8% to 5%, and include all costs and fees charged to the borrower. NAMB opposes this provision of Title III of H.R. 3915 and believes it is imperative that any legislation addressing the “points and fees” threshold for HOEPA directly and expressly exclude indirect mortgage originator compensation, as well as any seller concessions, seller-paid points, and government loan program fees (i.e., FHA / VA) from the calculation.

There are two principal reasons for our stated position. First, we are concerned that lowering the threshold will capture a large number of loans and borrowers that are not in need of the extra protections that HOEPA provides. Reducing the trigger to 5% and including all costs and fees in that calculation will shrink the availability of credit for borrowers who need it. We are concerned that that many lenders will decide not to make loans that cross this new HOEPA threshold, which will put many consumers in a particularly perilous position as interest rates rise. As a result, the supply of smaller second mortgages will dry up and consumers will be forced to choose between high-cost credit card debt and refinancing out of favorable first mortgages to meet their immediate needs.

Second, under HOEPA currently, a loan is covered if one of two thresholds are met: (1) the Annual Percentage Rate (“APR”) exceeds Treasury securities by 8%, and 10% for second mortgages; or (2) the total “points and fees” paid by the consumer exceed the greater of 8% of the loan amount or a set dollar amount ($547 for 2007), adjusted annually for inflation. Indirect mortgage originator compensation is already captured in the APR threshold. Including this compensation in the “points and fees” trigger, as proposed in H.R. 3915, is unnecessary and duplicative. We strongly urge the Committee to revise Title III and raising the “points and fees” threshold.

2. Prohibition Against Financing Points and Fees

Section 302 of H.R. 3915 prohibits the financing of points or fees on high-cost loans covered by HOEPA. We urge the Committee to reconsider this prohibition, and either remove it or revise Title III so that trigger is raised significantly. In practice most points and fees on non-prime loans are financed, because most non-prime borrowers do not have ready access to the cash needed to pay such points and fees or they do not want to tap other illiquid assets to do so. This restriction, if enacted, would effectively eliminate from the market all borrowers who can’t qualify for a non-high-cost mortgage, and who are unable to afford the significant upfront costs associated with obtaining a mortgage loan.

We believe it is important to react to a real risk, not merely a perceived risk. Currently, the true magnitude of the problem in the mortgage market remains unclear. There are conflicting reports and estimates that vary significantly in their assessment of the real extent of the current and projected market

turmoil. The recently released GAO report5 predicted that roughly 1.1 million loans originated from 2004-2006 would foreclose over a six to seven year period, compared with the estimated 2.2 million foreclosures that the Center for Responsible Lending (“CRL”) has forecasted. These dramatically contrasting figures serve to further confuse the issue and reinforce the importance of not over-reacting to a perceived or exaggerated problem, which could result in greater harm than good for consumers. Tempered responses and proposals are critical in a market that is already prone to over-reaction.

3. Pre-Loan Counseling Requirement

NAMB opposes the inclusion of provisions intended to expand and require counseling programs for borrowers, prior to purchasing a high-cost loan. Counseling requirements unnecessarily slow down the loan process for consumers and make “emergency” loans virtually unattainable. Moreover, the experiences in Ohio have clearly demonstrated that mandatory counseling harms both consumers and the neighborhoods in which they live.

V. Escrow, Appraisal and Mortgage Servicing

Although not specifically addressed in H.R. 3915, we want to take this opportunity to commend Reps. Kanjorski (D-PA), Wilson (D-OH), Hodes (D-NH), and Chairman Frank (D-MA) for proposing the Escrow, Appraisal, and Mortgage Servicing Improvements Act (“HR 3837″). NAMB believes that efforts to require escrows for certain mortgage loans, to improve mortgage servicing, promote sustainable homeownership opportunities, and improve the appraisal process are laudable, and we support legislation that furthers these ends.

VI. Conclusion

NAMB appreciates this opportunity to share its views on the Mortgage Reform and Anti-Predatory Lending Act of 2007. Everyday our members live and work in their communities alongside consumers; and from this we know that consumers want to be able to get a loan they can afford and keep. We strongly believe that consumers deserve the same level of protection no matter where or with whom they choose to get their mortgage loan from, and we applaud the broad and even approach taken in crafting this legislation.

As was revealed in the aforementioned GAO report6, consumers have been negatively affected by a myriad of market forces and participants, and the root of the problems in the mortgage market today cannot be traced to any single source. Consequently, the solutions to today’s problems must encompass and be embraced by all market participants.

While we are supportive of many of the overall concepts embodied in H.R. 3915, particularly the all originator construct, we urge the Committee to exercise caution when contemplating legislative action that could significantly reduce the availability of credit and unintentionally harm many of the consumers who need help the most. NAMB looks forward to continuing to work with this Committee on its efforts to protect consumers from abusive lending practices, while maintaining the availability of affordable credit and preserving opportunities for small businesses throughout the nation.

Thank you for the opportunity to appear before this Committee and discuss this very important piece of legislation. I am happy to answer any questions that you may have.

5″Information on Recent Default and Foreclosure Trends for Home Mortgages and Associated Economic and Market Developments,” United States Government Accountability Office, October 16, 2007.

Related Posts:

1. 11/9/07 NAMB Legislative Alert On HR 3915
2. HR 3915 NAMB Teleconference Info
3. HR 3915 Mortgage Reform Act of 2007

National Teleconference to Discuss H.R. 3915 the “Mortgage Reform and Anti-Predatory Lending Act of 2007

Mortgage brokers are facing extinction. The U.S. House of Representatives is considering a bill that will fundamentally change the way we are paid, outlaw YSP, and legislate underwriting guidelines into law. Additionally, we fear that all subprime lending will cease to exist due to excessive lender liability. It is important that you read this memo.

We are calling upon our members to respond as never before. To save our industry, we are asking you to learn about this threat and then contact your congressman.

TIME IS CRITICAL. The bill became public last week. The U.S. House of Representatives Financial Services Committee will vote next week.

LEARN. Step 1: We have scheduled two information teleconferences. Please choose ONE of the two. The first is scheduled for Thursday, November 1st at 1:00pm EST (12:00pm CST, 11:00am MST, 10:00am PST), and the second is scheduled for Friday, November 2nd at 7:00pm EST (6:00pm CST, 5:00pm MST, 4:00pm PST). These are free calls.

CALL IN NUMBER

THURSDAY: 1-877-238-4697 Pass code: 453723.

FRIDAY: 1-800-214-0745 Pass code: 648439.

There will be 500 lines for each of the calls. Please call in early to guarantee a spot. You will be placed on hold with music until the moderator begins the teleconference.

RESPOND. We have prepared sample letters for your use in writing to or calling your congressman. These will be sent to our entire membership on Friday. Important warning: The vote is now scheduled for Tuesday, November 6. Please respond before next Tuesday.

More information is contained below. However, please call in to our conferences and respond so that we can preserve the way we do business and the subprime mortgage market.

Related Posts:

1. 11/9/07 NAMB Legislative Alert On HR 3915
2. HR 3915 HFSC NAMB Testimony
3. HR 3915 Mortgage Reform Act of 2007

This is a critical time. Our Representatives are considering legislation that limits consumers’ options, will raise the cost of financing of a home, and seriously limits competition in the lending industry. H.R. 3915, in its current form, will seriously decrease the options consumers have in the market place and will hurt first time homebuyers and borrowers that need to consider financing options that do not require closing costs to be paid upfront. It is important that we stand up to HR 3915 and the lobbyists and special interest groups that are pushing it, in order to protect consumers and American Home Owners. Do not think this cannot seriously affect you, if you are a current or future home owner, you will be negatively affected by HR 3915 if it passes in its current form, it must not pass!

Breakdown of H.R. 3915, Proposed Mortgage Reform Legislation

H.R. 3915, otherwise known as H .R. 3915 the Mortgage Reform and Anti-Predatory Lending Act of 2007, is poised to effectively end the practice of brokering mortgage loans as we know it by eliminating YSP or Yield Spread Premium. This bill will not only eliminate a necessary part of the lending mechanism that Americans depend on for home financing, but more importantly, it will hurt consumers by raising their costs for home loan financing, decrease competition, and give consumers less options for financing their homes.

On Monday, October 22, 2007, House Financial Services Committee Chairman Barney Frank (D-MA), along with Representatives Miller (D-NC) and Watt (D-NC), introduced H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007.” Below you will find the full H.R. 3915 bill, a section by section summary, the NAMB Press Release, and NAMB’s Testimony presented before the HFSC.

The bill contains three sections. Title 1 will create a federal duty of care and outlaw steering. The anti-steering language will outlaw incentive compensation and YSP that varies with the terms of a loan. The section will allow indirect compensation if disclosed early in the process. This section also creates a minimum licensing standard for all originators and net worth or bond requirements of $100,000.

Title 2 creates an ability to repay standard and hardwires underwriting guidelines. Underwriting will include a verified ability to repay and take into account amortizing payments. Guidelines will also include taxes and insurance payments when calculating ratios. For refinancing, the act will define and require a net tangible benefit. For prime loans, there is a safe harbor. However, for subprime there is assignee liability and expanded rescission rights. Standards will also create a defense to foreclosure. Severe restrictions will be placed upon first-time homebuyer mortgages with negative amortization features.

Title 3 will expand the existing Section 32 of TILA by reducing the points and fees triggers and expand lender liability. Prohibitions include no balloon loans, no lending without regard to ability to repay, prohibit a pattern or practice of making such loans, restrict late fees, and prohibit the financing of any points/fees. Taken together, the expansive liability and prohibited terms and conditions will make Section 32 lending practically impossible.

Related Posts:

1. HR 3915 Mortgage Reform Bill – Full Text
2. 11/9/07 NAMB Legislative Alert On HR 3915
3. HR 3915 NAMB Teleconference Info