WASHINGTON -
The measure was introduced in the House Financial Services Committee by Pennsylvania Democrat Paul Kanjorski in response to growing reports of abusive and deceptive practices in mortgage servicing and appraisals, especially in the subprime market, according to Kanjorski, the leading credit union advocate in Congress. Also signing on as co-sponsor of the bill is Financial Services Chairman Barney Frank, giving the measure added weight.
The bill, dubbed the Escrow, Appraisal and Mortgage Servicing Improvements Act, sets strict independence standards for real estate appraisals prohibiting lenders from influencing appraisals in any way and creates strict penalties for failure to maintain independence.
The bill also allows consumers to obtain copies of all appraisals at least three days before closing, so that they know of any changes in value.
It also bars a lender from making a high-cost (subprime) mortgage without first obtaining a written appraisal of the property, and the requirement of a second written appraisal if another loan on the property has occurred in the previous six months.
The measure also sets new rules for escrow accounts, including a calculation of all escrow payments for taxes and insurance in any repayment analysis in mortgage quotes, and it updates the Real Estate Settlements Procedures Act to create new consumer protections for mortgage servicing, such as describing when the servicer can impose force-placed insurance, mandating faster responses to consumer inquiries, increasing penalties for abuse, and requiring prompt crediting of mortgage payments.
Kanjorski, the chief sponsor of the CU Regulatory Improvements Act, detailed his concerns about abuses in mortgage servicing and appraisals during the NAFCU Congressional Caucus last month. He said he is concerned that the most needy mortgage borrowers, many who are caught in exploding subprime loans, have been hurt by abuses, such as insufficient or late escrow payments on property taxes or by real estate appraisals that have been artificially boosted to qualify people for mortgages they can't afford.
Kanjorski became concerned about these issues because of growing foreclosures in his Pennsylvania district that resulted from unaffordable mortgages, appraisal inflation, poor servicing, and fraud, among other things.
The Pennsylvania lawmaker, who chairs the Financial Services Committee's subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, plans to hold hearings on the bill in the near future.
