House bill targets predatory mortgages

WASHINGTON — With hundreds of thousands of families facing foreclosure in recent months, lawmakers have introduced legislation aimed at protecting consumers against predatory mortgages.

The bill, sponsored by House Financial Services Committee Chairman Barney Frank, D-Mass., and North Carolina Democratic Reps. Brad Miller and Mel Watt, is an update from similar legislation filed in 2005. It's based largely on North Carolina's predatory lending law, often considered among the most stringent in the nation.

"Some of the practices that were taking place in the subprime and prime markets just have kind of gotten out of hand," Watt said in an interview Monday. "A number of people were being kind of suckered into high-cost loans by teaser rates that would get them in for three months, six months, a year, and then they were faced with adjustable rates that would be impossible to pay."

Among other provisions, the legislation would:

— Require mortgage brokers and bank loan officers to be licensed.

— Require those who make loans establish that borrowers have a reasonable ability to repay a loan.

— Prohibit home refinancing unless the borrower will receive a "net tangible benefit."

— Prohibit the financing of points and fees.

— Prohibit brokers from earning more money by steering borrowers into higher-risk loans.

— Prohibit prepayment penalties on subprime loans.

The Center for Responsible Lending, a consumer advocacy group, estimates that 2 million families have lost or are in danger of losing their homes to foreclosure. In recent years, a booming housing market has led to risky mortgages, with home buyers often paying lending rates beyond their income levels.

"A number of people were left out there not able to pay the mortgages," Watt said. "The whole market just got really shaky."

The housing market crisis has spread to other industries, affecting the stock market and drawing more widespread attention, which Watt said could help the legislation move more easily through Congress. The previous bill stalled in committee.

"What has happened in the market really has created more of a political atmosphere in which you can advance a bill of this kind," Watt said.

Prentiss Cox, a University of Minnesota law professor who studies mortgage lending, said the bill has some good ideas but could do more by, for example, limiting fees or certain kinds of loans.

"This is a great first step forward," Cox said. "I just hope it goes a little farther."