Subprime bill deemed “a constructive step”

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WASHINGTON – Spencer Bachus, a ranking member of the House Committee on Financial Services, has proposed to set uniform standards for mortgage originators as part of legislation presented by him in an attempt to protect homebuyers from predatory lending practices.

The Fair Mortgage Practices Act (HR 3012), or the Bachus bill, is the result of a 16-month effort to create a bipartisan solution to concerns about unfair practices in the subprime mortgage market.

The bill includes several new or enhanced consumer protections. It creates a national registration and licensing standard for mortgage originators, to enhance accountability and professionalism within the industry. It will increase transparency in the mortgage process by simplifying disclosures for borrowers. It aims to encourage financial institutions to evaluate a borrower’s ability to repay a mortgage loan before extending credit, alongside increased support for housing counselling. It also restricts prepayment penalties on hybrid adjustable-rate mortgages, and requires subprime mortgages to have escrow accounts for taxes and insurance at the time the loan is consummated. There are also provisions to strengthen enforcement against mortgage fraud schemes and improve the integrity of appraisals.

“This bill is the culmination of more than 16 months’ effort,” says Bachus. “We have had multiple hearings, shared ideas and adopted a ‘Sense of The Congress Resolution’. It is time now to adopt a solution that maintains the benefits subprime lending has brought to our citizens while protecting against the abusive practices that threaten the subprime market.”

During a hearing on the US subprime crisis, Treasury secretary Paulson described the bill as “a constructive step”, while in his own testimony before the Committee, Fed chairman Ben Bernanke acknowledged “consumers may also benefit from better information about costs, including brokers’ fees, when choosing among competing mortgage products”.

Bachus expressed his hope that this subprime lending bill will be given prompt consideration by the Financial Services Committee and move expeditiously to the House floor.

“Protecting borrowers and preserving access to credit is critically important if we are going to keep the dream of home ownership and all its benefits attainable for working families,” said Bachus. “This is an important issue, which we have studied, debated and agreed on the need for legislation. Now we need to act.”

Additional sponsors of the bill include representatives Deborah Pryce, Gary Miller, Steve LaTourette, Judy Biggert, Vern Buchanan, Vernon Ehlers, Fred Upton, Ginny-Brown Waite, Shelley Moore Capito and Ralph Regula.