States with strong anti-predatory lending laws or with some level of predatory lending protection are as follows: Arkansas, California, Georgia, Illinois, Maine, Massachusetts, North Carolina, New York, New Jersey, New Mexico, and South Carolina, Colorado, Connecticut, Florida, Kentucky, Maine, Maryland, Nevada, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Utah, Wisconsin, and West Virginia.
* Ban all fees paid to loan officers that are tied to the interest rate of the mortgage or the type of the loan. During the headiest years of the boom, Wall Street investment banks paid mortgage brokers higher fees if they originated exotic loans such as short-term subprime adjustable-rate, interest-only, payment-option and "stated income" no-documentation loans with minimal or no down payments.
The lending industry also routinely paid brokers higher fees for originating mortgages that carried rates above prevailing levels. Loan officers frequently steered applicants with marginal credit histories into loans with excessive rates and penalties -- and were paid extra by banks and Wall Street for doing so. Studies have documented that minority and first-time borrowers disproportionately were marketed loans with unnecessarily high fees and penalties, based on their credit scores.
The new bill would prohibit any compensation -- "direct or indirect" -- that is tied to the rate or terms of the mortgage. "There should be no way you can be compensated for steering anyone to a higher rate," Frank said in an interview. The bill does permit home buyers or refinancers to opt for a slightly higher note rate to finance closing costs.
* Create mandatory minimum national quality standards for all mortgages. The rules would encourage lenders to make fully documented 30-year, fixed-rate loans with prevailing market rates, as opposed to loans with higher-risk features such as adjustable payments and negative amortization. The bill would also impose a federal "duty of care" standard requiring loan officers to offer applicants terms and rates that are "appropriate" to their income and ability to repay. Refinancing would have to pass a "net tangible benefit" test demonstrating that the replacement loan is superior to the borrower's current terms. Lenders would have to offer applicants the option to choose any loan without a prepayment penalty attached. Mandatory arbitration clauses in most mortgages would be banned.
* Allow borrowers who are put into mortgages that violate the new law to seek legal redress through cancellation of the loan contract, refund of all payments and fees and compensation for legal costs.
Borrowers who lied or committed fraud on their loan applications would have no such recourse. The bill would also extend liability for rule violations to third-party securitizes who buy loans for repackaging into mortgage bonds. Originators of all but fully documented 30-year, fixed-rate loans would be required to retain at least a 5% stake in the loan until it's finally paid off. If the loan goes into default, they would retain some economic stake in the losses.
See Full Article in the LA Times, and other related articles in Acorn, Realty Times and the Seattle Times, .
Here are some questions to consider:
1. What is the political agenda for this new Federal reform bill?
2. What is/are this bill's primary objective(s)?
3. Is this new reform bill more restrictive, more protective than State and local anti-predatory lending laws or regulations?
4. Since Federal Laws over ride State and local laws, what will happen to States with more restrictive or more protective consumer laws?
5. Have previous or prior reforms similar to this helped or have they hindered?
6. Who would profit from this reform?
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