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New Mortgage Loan Protections Outlined in Wall Street Reform

The House Financial Services Committee has released a summary of the major changes included in the Wall Street Reform and Consumer Protection Act. These are items which have been accepted by a conference committee of the House and Senate. If the conference report is passed by both houses, the measure will then go to the President for his signature. If signed — and there should be a signature on or before July 4th — we will then have a new Wall Street reform law.

Many of the items in the measure relate to mortgage loan financing. The summary below tells us part of the story — it does not tell us what was left out of the legislation and it says nothing about the specific exceptions and benefits buried in the text. (The last revision of the bill was 1,616 pages in length so you can bet there are plenty of goodies for various special interests. We’ll know more when the final text is published.)

Below is a list of inclusions in the bill, as reported by the Financial Services Committee.

Mortgage Reform

  • Require Lenders Ensure a Borrower’s Ability to Repay: Establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold.
  • Prohibit Unfair Lending Practices: Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as “yield spread premiums” that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans.
  • Prohibit Unfair Lending Practices: Prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans, including the bonuses known as “yield spread premiums” that lenders pay to brokers to inflate the cost of loans. Prohibits pre-payment penalties that trapped so many borrowers into unaffordable loans.
  • Establishes
    Penalties for Irresponsible Lending: Lenders and mortgage brokers who don’t comply with new standards will be held accountable by consumers for as high as three-years of interest payments and damages plus attorney’s fees (if any). Protects borrowers against foreclosure for violations of these standards.
  • Expands Consumer Protections for High-Cost Mortgages: Expands the protections available under federal rules on high-cost loans — lowering the interest rate and the points and fee triggers that define high cost loans.

  • Requires Additional Disclosures for Consumers on Mortgages: Lenders must disclose the maximum a consumer could pay on a variable rate mortgage, with a warning that payments will vary based on interest rate changes.
  • Housing Counseling: Establishes an Office of Housing Counseling within HUD to boost homeownership and rental housing counseling.

Related Changes

  • Establishes a Consumer Financial Protection Bureau.
  • Monitor Personal Financial Rating: Allows consumers free access to their credit score if their score negatively affects them in a financial transaction or a hiring decision. Gives consumers access to credit score disclosures as part of an adverse action and risk-based pricing notice.

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Posted in: Mortgages

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