Lenders Ready to Battle Proposed Mortgage Reforms in Senate
WASHINGTON u Had there been a federal watchdog consumer protection agency on duty during the early years of this decade, could it have prevented the housing boom and bust that put millions of homeowners into foreclosure and sucked trillions of dollars of equity wealth from just about everybody else?
Nobody can answer that question. But when the House passed the massive Wall Street Reform and Consumer Protection Act on Dec. 11, Congress took the first step toward creating a national watchdog for homebuyers and mortgage borrowers for any future boom cycles.
The 1,279-page bill covers a vast amount of financial territory. But for ordinary consumers looking to apply for a home loan, what it says is this: Next time around, the federal government isn't as likely to be asleep at the wheel. You'll be less likely to encounter an environment where unregulated pitchmen and con artists can sell you loans requiring no money upfront, no documentation, hyped-up appraisals and payment plans that drag you deeper into debt.
Nor will Wall Street investment banks be allowed to chop and churn poisonous mortgages into destructive investments for the capital markets u even if the bonds are rated triple A by companies that see no evil and report no evil.
For buyers, the core of the legislation is its creation of a new Consumer Financial Protection Agency, with broad powers to oversee and evaluate the consumer-safety features of mortgages and equity credit lines offered by banks, mortgage companies, brokers and others nationwide. Though no specific types of loans are prohibited in the legislation itself, the CFPA almost certainly would limit or closely regulate mortgages that come with extra layers of risk u teaser rates, adjustable payments, negative amortization, and options for borrowers to pay as little as they want per month.
The agency would also play a pivotal role in spotting discriminatory patterns in mortgage pricing, underwriting and marketing, from the steering of minorities and seniors into higher-cost loans to unfair denials of credit on racial or other prohibited grounds. The CFPA would essentially take over federal responsibility for the Equal Credit Opportunity Act and fair lending programs, and function as the go-to agency on unfair and deceptive trade practices in the financial arena.
On top of all this, it would monitor home real estate settlement practices such as under-the-table payoff schemes among realty agents, lenders, title companies, lawyers and others in exchange for business referrals. It would also get prime responsibility for making disclosures of loan terms to consumers meaningful and understandable, including a first-ever combined truth-in-lending and good faith estimates disclosure for all mortgage transactions. …