This afternoon Senator Dodd has introduced an anti-predatory lending bill that, if passed, will insure that a full-blown mess like the current subprime crisis will not happen in the future. Last month the House of Representatives passed HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007 by a vote of 291 to 127.
Now Senate Banking Committee Chair, Chris Dodd, has introduced a companion bill on the Senate side which is much stronger and consumer friendly. We can, however, expect the same kind of intense industry pressure to water down the Senate bill that we witnessed in the House. You can help by letting your senator know that you want a law that holds Wall Street, the loan servicers, the appraisers, the lenders and the mortgage brokers all held accountable so that the junk loans of the past three years never get foisted on the American people again. .
You can keep track of this bill by checking in regularly with the National Community Reinvestment Coalition.
If you want more details go over the jump:
You may remember that as Congressman Frank's anti-predatory lending bill (HR 3915)came to a vote on November 15th, consumer groups grew uneasy that Chairman Frank had given away too much to the industry and to Republicans in order to get a bi-partisan bill. In the end every Democrat that voted, voted in favor of this bill, but consumer groups were not happy with the outcome.
So how does the Dodd Bill compare to Congressman Frank’s bill? Keep in mind that the bill has just been dropped and we all haven't had a chance to vet it thoroughly yet, but here’s a rough, beginning analysis which will no doubt be improved on by the folks over at the National Community Reinvestment Coalition soon:
What the Dodd Bill calls for:
Protections for all loans include:
• Fiduciary duty relationship for broker to borrower.
• Prohibition of steering by a broker or creditor to a higher priced loan than that which the borrower qualifies.
• Ability to repay based on debt to income and residual income analysis, along with W-2, pay stubs, bank records or best available documentation. This provision bolsters the lender’s assessment of borrowers who might otherwise be guided to low-doc or no-doc loans.
• Establishes a reasonable care standard for lender to act in good faith.
• Acquirers of foreclosed properties must adhere to tenant leases.
• Protections against servicer abuse and requirements for servicers to promptly credit borrower payments, including escrow
• Servicers must make reasonable efforts to offer loss mitigation including loan modifications in order to avoid foreclosures.
• Protections against mandatory default proceedings when refinancing is initiated.
• Protections against appraiser fraud, including the prohibition against a creditor seeking to influence an appraisal
• Notification of available housing counseling upon delinquency of payment
• Lender prohibited from recommending default on an existing loan prior to refinancing borrower.
Liability for all loans includes:
• Right of rescission
• Increase in civil penalties awarded
• Securitizer / Holder (that is, secondary market) is liable to individual borrowers in all cases and to class action in high cost, subprime and non-traditional lending.
• Prohibition of mandatory arbitration
Protections Applied to High Cost loans:
• No prepayment penalties
• No balloon payments
• No yield spread premiums
• No financing of points and fees
• No evasions or structuring a loan for the purpose of evading high-cost loan provisions
• No modification or deferral fees unless modifications result in lower APR and fee is reasonable and bona fide
Protections for Subprime and Non- Traditional Loans:
A debt to income analysis must involve monthly principal, interest, tax and insurance in repayment analysis. The borrower’s residual income is taken into account in ability to pay analysis.
A net tangible benefit standard is established when a subprime or non-traditional loan refinances a prior loan.
No prepayment penalties or yield spread premiums allowed on subprime and non-traditional loans.
What Dodd’s bill lacks that HR 3915 contains:
• No mandatory counseling provision
• No licensing and registration of brokers, no national database
Weaknesses in H.R. 3915 not in Senator Dodd’s bill
Assignee liability One of the largest flaws in H.R. 3915 was the significant limitation on assignee liability. A securitizer would not be liable to individual borrowers if a securitizer has a policy against purchasing loans that are not qualified mortgages (prime loans) or qualified safe harbor mortgages (subprime loans with certain criteria such as underwritten at fully indexed rate) and has due diligence procedures to enforce this policy. The difficulty is that the due diligence procedure involves sampling, meaning that abusive loans other than qualified mortgages and qualified safe harbor mortgages could slip through the securitizer’s due diligence screens. In addition, it is possible for considerable number of loans to be abusive that are qualified mortgages or qualified safe harbor mortgages. For example, option ARMs could be qualified mortgages, have a prime rate, yet still be beyond a borrower’s ability to repay.
Dodd’s bill preserves holder (that is, secondary market) liability to individual borrowers in all cases and allows for class action in certain cases. Holders of subprime and non-traditional loans shall be liable to individual borrowers for violations of ability to repay and duty of care and steering prohibitions. Holder of subprime and non-traditional loans shall be liable under a class action unless the holder demonstrates that it had employed reasonable due diligence and could not determine that the loans were in violation of ability to repay and duty of care. Any holder of a loan that is not a subprime or non-traditional loan is liable only to individual borrowers; the liability is limited to extinguishing the borrower’s liability under the loan plus recovering costs, including attorney’s fees. The unlimited liability associated with HOEPA or very high-cost loans remains in Dodd’s bill.
Preemption: HR 3915 preempts state law as applied to securitizers. Dodd’s bill has no such preemption.
Remedies: HR 3915 was criticized as offering relatively weak remedies. For example, violations of originator duty of care and anti-steering was up to three times the amount of direct and indirect compensation for the originator. This amount was low and would not be enough in many cases to make a borrower whole. There is no such limit in the Dodd bill.
While the Dodd bill has been introduced, it seems doubtful that an actual vote will occur until 2008, but now is the time to talk to your Senators or fax them a quick note to ask them to sign on as a co-sponsor to Senator Dodd’s bill. The following Senators have already agreed to be co-sponsors:
But we’ll need some more, including a few Republicans to make this bill pass.
You can start with the Senate Banking Committee members:
Christopher J. Dodd Chairman (D-CT) Tel: 202-224-2823 Fax: 202-224-1083
Tim Johnson (D-SD) Tel: 202-224-5842 Fax: 202-228-5765
Jack Reed (D-RI) Sponsor Tel: 202-224-4642 Fax: 202-224-4680
Charles E. Schumer (D-NY)SponsorTel: 202-224-6542 Fax: 202-228-3027
Evan Bayh (D-IN) Tel: 202-224-5623 Fax: 202-228-1377
Tom Carper (D-DE) Sponsor Tel: 202-224-2441 Fax: 202-228-2190
Robert Menendez (D-NJ) Sponsor Tel: 202-224-4744 Fax: 202-228-2197
Daniel K. Akaka (D-HI) Sponsor Tel: 202-224-6361 Fax: 202-224-2126
Sherrod Brown (D-OH) Sponsor Tel: 202-224-2315 Fax: 202-228-6321
Robert P. Casey (D-PA) Sponsor Tel: 202-224-6324 Fax: 202-228-0604
Jon Tester (D-MT) Tel: 202-224-2644 Fax: 202-224-8594
Richard C. Shelby Ranking (R-AL)Tel: 202-224-5744 Fax: 202-224-3416
Robert F. Bennett (R-UT) Tel: 202-224-5444 Fax: 202-228-1168
Wayne Allard (R-CO) Tel: 202-224-5941 Fax: 202-224-6471
Michael B. Enzi (R-WY) Tel: 202-224-3424 Fax: 202-228-0359
Chuck Hagel (R-NE) Tel: 202-224-4224 Fax: 202-224-5213
Jim Bunning (R-KY) Tel: 202-224-4343 Fax: 202-228-1373
Mike Crapo (R-ID) Tel: 202-224-6142 Fax: 202-228-1375
John E. Sununu (R-NH) Tel: 202-224-2841 Fax: 202-228-4131
Elizabeth Dole (R-NC) Tel: 202-224-6342 Fax: 202-224-1100
Mel Martinez (R-FL) Tel: 202-224-3041 Fax: 202-228-5171
Please take action today. The best thing you can do is either write a short heart-felt note about the need for protections from predatory lending, asking your Senator to co-sponsor Senator Dodd’s bill, which you can fax to the relevant number above. Or call their Washington office and ask to speak to their staff member who handles lending issues and tell them directly. If you want to keep on top of the progress of this bill check in with the National Community Reinvestment Coalition regularly for updates.
Thanks for taking action against the scourge of predatory lending!