Republican leaders wanted a quick victory, but legislation to automatically cancel mortgage insurance is taking them into overtime.
After months of negotiation, the Senate passed a bill Nov. 9 that could save homeowners $300 to $900 a year. The bill, however, differed from a version the House had approved in April, and time ran out before a conference committee could hammer out a compromise.
"It's a simple concept. I'm surprised this has become so complicated," said Michael J. Ferrell, senior vice president of the Mortgage Bankers Association.
Despite the delays, several congressional sources said Republican leaders on both sides of Capitol Hill are determined to pass the pro- consumer legislation.
Both versions of the legislation require mortgage servicers to disclose annually how much equity a consumer needs before he or she may cancel mortgage insurance.
The House version automatically terminates coverage when equity reaches 25% of a home's value; the Senate's level is 22%.
The Senate would also permit borrowers to cancel mortgage insurance when equity reaches 20%, as long as the property's value has not declined and the borrower has not been more than one month late on any mortgage payment in the preceding 12 months. The Senate bill also would let lenders require mortgage insurance for half the life of a high-risk mortgage and would preempt all state private mortgage insurance laws.
The House bill would apply to home equity loans but not to high-risk mortgages. It also would permit states to impose tougher cancellation standards on lenders.
Robert Davis, head of government relations for America's Community Bankers, praised the Senate for including the high-risk provision. "If insurance coverage is not available, some types of loans won't be offered," he said.
But Mr. Davis added that the Senate plan does not go far enough because it exempts only loans that meet high-risk criteria set by Fannie Mae and Freddie Mac. Not all risky loans conform to their standards, he said. For instance, some institutions require long-term insurance coverage when they lend to individuals who cannot verify income but make large down payments.
Both plans would cap damages from class-actions at $500,000, or 1% of a violator's net worth, whichever is less. For suits brought by individuals, the House plan would limit damages to the amount of overpaid premiums plus $1,000. Punitive damages would be limited to $2,000. The Senate would permit suits up to two years after a violation is discovered; the House would allow suits for three years after a violation occurs.
"Depending on when discovered this could extend the statute of limitations almost indefinitely," said Steve Zeisel, senior counsel for the Consumer Bankers Association.
The industry also is hoping to give banking regulators more authority to enforce the legislation. The Senate plan grants no rulemaking authority to any federal agency, though banking regulators could impose cease-and-desist orders. Disagreements over the law would be left to the courts. Under the House plan, the Department of Housing and Urban Development could impose additional mortgage insurance rules.
"Ideally we'd give authority to the Federal Reserve Board," said Joe Belew, CBA president. "Right now our choice is either a lot of litigation costs or turning to HUD, which has not been friendly to the banking industry."