November 15, 2007 marked the culmination of months of hard work by the NAMB Board of Directors and Government Affairs team, along with countless NAMB members from across the country. On November 15th, the U.S. House of Representatives (“House”) passed a final version of H.R. 3915, the “Mortgage Reform and Anti-Predatory Lending Act of 2007,” with three important provisions that will enhance consumer protection without favoring any market competitor, and will serve as a framework for other mortgage reform proposals in this and future Congresses. These provisions are:
- A National Registry of All Mortgage Originators;
- Enhanced Professional Standards for All Mortgage Originators; and
- Preservation of a Consumer’s Ability to Finance Points and Fees, and a Mortgage Originator’s Ability to Earn Compensation
These provisions not only represent major victories for NAMB and for mortgage originators, they also represent a victory for consumers everywhere.
We want to take this opportunity to review, in detail, the provisions that that were included in the final version of H.R. 3915, and attempt to provide you with a clear picture of the potential battles that still lie ahead.
Creation of a National Registry for All Mortgage Originators
There is no national standard for the licensing of mortgage originators, and a lack of oversight and enforcement across all distribution channels has left open the potential for abuse by certain bad actors within our industry. H.R. 3915 creates a system for registering all mortgage originators in a national database, including those working at state and federal banks, lenders, and other financial institutions. NAMB has been a strong advocate for a national registry, and we believe that the all-originator registration system created under H.R. 3915 will provide the most effective protection for consumers against bad actors who attempt to enter, remain, or move undetected within in this industry.
Enhanced Professional Standards for All Mortgage Originators
NAMB has long advocated for increased professional standards for all mortgage originators, regardless of where they work. H.R. 3915 requires all originators at state-chartered banks, lenders, and other financial institutions to be licensed in their state as a mortgage originator, submit to fingerprinting and criminal background checks, and satisfy minimum education and testing requirements for licensure. Although loan officers and employees of federal depository institutions do not need to comply with H.R. 3915’s licensing requirements and enhanced education and testing standards, they must be part of the national registration system created by the bill.
H.R. 3915 also imposes a duty of care on all mortgage originators. This duty requires mortgage originators to diligently work to present consumers with a range of residential mortgage loan products for which the consumer likely qualifies and which are appropriate to the consumer’s existing circumstances, based on information known, or obtained in good faith, by the originator. This means mortgage originators will have to ensure that a consumer who receives a mortgage loan has a reasonable ability to repay the loan, and will receive a net tangible benefit from the loan in the case of refinancing. However, the range of product options that originators are required to present to consumers is limited to those products offered by the originator.
Additionally, mortgage originators are required, under H.R. 3915, to make full, complete, and timely disclosures to each consumer, regarding (1) the comparative costs and benefits of each residential mortgage loan product offered, (2) the nature of the originator’s relationship to the consumer (including the cost of services provided and a statement that the originator is or is not acting as an agent for the borrower); and (3) any relevant conflicts of interest. H.R. 3915 does not create any agency or fiduciary relationship between a mortgage originator and a consumer, unless the originator holds himself or herself out to the consumer or to the public as an agent or fiduciary.
Finally, H.R. 3915 requires mortgage originators to certify to the creditor, with respect to any residential mortgage transaction, that the originator has fulfilled all requirements applicable under this law and has included a valid registration identifier provided by the Nationwide Mortgage Licensing System and Registry on all loan documents.
Preservation of a Consumer’s Ability to Finance Points and Fees, and a Mortgage Originator’s Ability to Earn Compensation
In an effort to restrict the predatory lending practice known as “steering,” H.R. 3915 prohibits mortgage originators from receiving any incentive compensation that is based on, or varies with, the terms (other than the amount of principal) of a non-prime mortgage loan. The original version of H.R. 3915 called into question the legitimate payment of Yield Spread Premium, as well as consumers’ ability to obtain a no-cost loan by choosing to finance points and fees. Working closely with House Financial Services Committee Chairman Rep. Barney Frank (D-MA) and Representative Gary Miller (R-CA), NAMB was able to successfully obtain clarification in the final bill that consumers retain the ability to finance origination fees, points and other closing costs into the loan rate or amount, and mortgage originators are entitled to receive the amount of their fully disclosed compensation in such cases.
Stronger “Protections” Under Section 32 of HOEPA
Although NAMB is very supportive of many of the provisions of H.R. 3915, there are some provisions, particularly in Title III of this bill, which we believe will have a broad and negative impact on the availability of credit for many borrowers. We fear the effects of Title III of H.R. 3915 will be felt most harshly by borrowers with imperfect credit histories and current homeowners seeking to refinance their mortgage loan to prevent or resolve payment issues.
Title III of H.R. 3915 revises Section 32 of the Home Ownership and Equity Protection Act of 1993 (“HOEPA”). This law addresses certain deceptive and unfair practices and amends the Truth in Lending Act (“TILA”), establishing requirements for certain loans with high rates and/or high fees. Title III amends Section 32 of HOEPA by lowering the points and fees trigger from 8% to 5%, in order to capture more loans.
Title III also defines points and fees and requires the following to be included in the HOEPA calculation: (1) mortgage broker compensation; (2) the maximum prepayment fees and penalties which may be charged or collected under the terms of the loan; (3) any credit life, credit disability, credit unemployment, or credit property insurance, or any other accident, loss-of-income, life or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract; and (4) all prepayment penalties that are incurred if a loan is being refinanced by the same creditor.
Additionally, Title III includes a prohibition against establishing a pattern or practice of high-cost mortgage lending, determining that any individual creditor that originates more than 2 high-cost mortgage loans in a 12 month period will be considered a high-cost mortgage lender. Title III of H.R. 3915 further prohibits balloon payments, extending credit to anyone who does not have an ability to repay, recommending default, charging late fees in excess of 4%, and financing directly or indirectly any points or fees on Section 32 loans. Finally, Title III also imposes a pre-loan counseling requirement for all mortgage loans covered by Section 32 of HOEPA.
Amendments to H.R. 3915 Approved on the House Floor
During the lengthy debate of H.R. 3915 on the House floor on November 15th, several amendments were successfully added to the bill. Among others, the approved amendments included:
- An amendment reflecting the provisions of H.R. 3837, “The Escrow, Appraisal, and Mortgage Servicing Improvements Act,” which requires escrows in certain cases, attempts to protect appraiser independence, and imposes certain servicing requirements.
- An amendment exempting Federal Housing Administration (“FHA”) insured loans from the bill.
Conclusion
The efforts of the thousands of mortgage brokers who called and wrote on behalf of NAMB regarding H.R. 3915 had a tremendous impact in the House. However, this was only the first step of many down the long road toward mortgage reform, and there are countless challenges that still lie before us.
Attention now shifts to the Senate, where mortgage reform is expected to be a focal point in the weeks and months ahead. Please continue to watch for email alerts from NAMB or go to http://www.namb.org for the very latest developments relating to mortgage reform in the 110th Congress.
To stay up to date on all of NAMB’s efforts in the House, in the Senate, in the press, and across the airwaves, please visit http://www.namb.org/nambfightsforyou.
A copy of amended H.R. 3915, as passed by the House, is available at: http://thomas.loc.gov.
