WASHINGTON — Sen. Hillary Clinton, the frontrunner for the Democratic presidential nomination, is expected to introduce a mortgage reform bill soon that tightens underwriting standards, enhances broker regulation, and sets aside more than $2 billion towards foreclosure prevention, affordable housing and mortgage fraud prosecution.
According to a draft copy of the American Home Ownership Preservation Act, obtained by American Banker, property taxes and fees, adjustments in interest rates, and property insurance would have to be accounted for when determining a borrowers’ ability to pay a loan. The bill would also ban prepayment penalties.
Sen. Clinton first announced her plan to offer a bill to stop abuses in the subprime market at a campaign stop on Aug. 7. But the draft bill offered more details into what the New York Democrat is planning.
The bill calls for a national broker registry and requires brokers to enhance disclosures, including detailing to borrowers any fees and how a loan rate and terms affect broker compensation.
The bill also would encourage the government-sponsored enterprises to “identify and assist homeowners at risk of default or foreclosure on their mortgage, but would be able to stabilize their financial situation if their mortgage was recast into more traditional terms, such as a fixed rate 30-year or 40-year mortgage.” But the bill does not establish an enforcement mechanism for the goal.
The bill would establish a foreclosure prevention and mortgage refinance fund of $1 billion through the Department of Housing and Urban Development. The agency would divvy out the funds for state foreclosure prevention programs for at-risk or distressed borrowers, giving preferential treatment to those partnered with housing agencies, GSEs, private lenders, non-profit organizations and mortgage insurance companies that create refinancing options for at-risk mortgages.
It would also establish $1 billion in grants to assist affordable housing trust funds that support low and moderate-income housing and set aside $20 million to support additional employment of Federal Bureau of Investigations agents and Department of Justice prosecutors to coordinate mortgage fraud prosecutions with state attorney generals.
The bill joins the ranks of other pending legislation but Senate Banking Committee Chairman Chris Dodd, who is also running for president, is not expected to take up Sen. Clinton’s measure.
The Connecticut Democrat announced Sept. 5 he would introduce a mortgage reform bill that holds lenders accountable for brokers and appraisals and reins in several products such as no- and low-documentation loans.
Sen. Barack Obama, D-Ill., another Democratic presidential contender, reintroduced a bill targeting mortgage fraud in April and is expected to also offer legislation to address the subprime crisis.
Sen. Charles Schumer, D-N.Y., introduced a bill in May that creates good faith and fair dealing standards for all lenders, prevents steering into predatory loans, and tightens underwriting standards.
