WASHINGTON -
A bill introduced last week by leaders of the House Financial Services Committee would not only regulate mortgage brokers and other non-regulated players in the market, but would also create new requirements for CUs, banks and other regulated lenders, requiring regulated lenders to obtain licenses in each state they do business, determine the ability of a borrower to repay a loan; and make lenders liable for loans sold on the secondary market that may run afoul of federal law.
Ironically, the fight against predatory lending in the mortgage market was spearheaded by CUs in North Carolina who helped get passed a landmark bill regulating subprime lending seven years ago. A key provision would restrict prepayment fees and penalties for borrowers, a provision first introduced in the North Carolina bill, championed by community development credit union Self Help CU and mainstream credit unions like State Employees CU and State and Local Government Employees FCU.
NCUA Chairman JoAnn Johnson told lawmakers during a hearing last week that she is in favor of several of the bill's aims, and those of other measures proposed in recent weeks, but she fell short of endorsing the bill. But Johnson also asked the committee to ensure that NCUA is brought into the rulemaking process for implementing any of the new proposals, and Congress readily agreed.
Caution From CU Lobby
NAFCU cautioned the committee against adding to the significant regulations that federal credit unions already must comply with if they decide to require state licensing for all mortgage lenders. CUNA said last week it was still studying the provisions of the bill and was not prepared to comment.
While Johnson told Congress she is confident that few credit unions engage in the kinds of practices widely ascribed to subprime lenders, its is clear that CUs will be swept into any of the numerous reform proposals being contemplated by Congress.
It is no accident that two of the chief sponsors of the House mortgage bill are U.S. Reps. Mel Watt and Brad Miller, Democrats from North Carolina, which passed the most comprehensive predatory lending bill in 2000. That bill, bars so-called equity-stripping schemes to refinance mortgages at a lender's premium; restricts prepayment penalties and fees; and requires that would-be borrowers of high-cost loans receive financial counseling before entering into a transaction, among other things.
Some lawmakers opposing the new House bill asserted that the North Carolina bill had resulted in less availability of home loans, especially for lower-income borrowers. Rep. Patrick McHenry, a North Carolina Republican, insisted the result of the law in his home state has been less mortgage lending. The proposed bill, said McHenry, "will deepen the trough of the mortgage challenge we are facing."
But several lawmakers cited studies finding there were fewer subprime loans made in North Carolina since passage of the bill, but not a lack of available credit. Other lawmakers suggested that the bill needlessly brings regulated lenders, like credit unions and banks, into a new regulatory scheme to solve problems mostly attributed to unregulated lenders. But Congressman Spencer Bachus of Alabama said research by his staff shows that as much as 40% of the "questionable" loans made to homebuyers have come through federally insured financial institutions.
Future In Senate Unclear
Congressman Barney Frank, chairman of the financial services committee, said he hopes to be able to move the mortgage bill to a vote in the committee in the next few weeks, and have the full House vote on it by year-end. The prospects are unclear in the Senate. The chairman of the Senate Banking Committee, Chris Dodd, has been mostly absent while he is running for President and there is little consensus on reforms for the mortgage market.
