Subprime fallout: US passes lending reforms
The US House Committee on Financial Services has approved bipartisan mortgage reform legislation and anti-predatory lending practices
WASHINGTON, DC – In the wake of the subprime crisis, the House Committee on Financial Services has passed The Mortgage Reform and Anti-predatory Lending Act of 2007. The legislation creates a licensing system for mortgage loan originators, attaches limited liability to securitisation, creates new borrowing standards and increases customer protection – including the establishment of an Office for Housing Counselling.
The new licensing system for residential mortgage loan originators comes in response to public outcry over the irresponsible commission-based lending practices that sparked the subprime crisis. It means all lenders and individual employees responsible for issuing mortgages will now be registered.
The US government will create a Nationwide Mortgage Licensing System and Registry (NMLSR) that, together with federal banking agencies, will gather information from licence applicants – including results of written tests, personal histories and fingerprints. Any state that falls short of the standards will be subject to a backup licensing system from the Department of Housing and Urban Development (HUD).
New mortgage origination minimum standards tighten rules regarding a lender’s responsibility to provide the correct loans in an effort to eliminate predatory practices, and to increase disclosure and transparency to consumers and regulators, with a particular emphasis on the subprime sector.
The new standards also cover securitisation liability, adding responsibility to carry out due diligence to ensure loans conform to standards and assess the potential for damages to consumers.
Consumer protection for high-cost mortgages will expand, with APR and fee-trigger percentages lowered from 10% to 8% and 8% to 5% respectively. Requirements of pre-loan counselling have been introduced, while the financing of points and fees are prohibited. So are excessive fees for payoff information, modifications or late payments, as are practices increasing the risk of foreclosure – such as balloon payments, call provisions and encouraging a borrower to default.
An Office for Housing Counselling will also to be created within the HUD to provide counsel regarding home ownership and rental housing.
The Office will provide technical help and funding to state and local governments, and non-profit organisations, in setting up consumer education programmes. It will also require the certification of consumer computer programs for evaluating loan proposals, and limits the authorised appropriation for national public service multimedia campaigns for homeownership counselling services to $3 million until 2010.
The Office for Housing Counselling will also study and report to Congress on the root causes of the default and foreclosure of home loans.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Risk management
Eurex product co-head departs
Zubin Ramdarshan’s exit comes after exchange CEO Robbert Booij confirms departure
Off the grid? Dealers mull XVA cloud shift
Risk Benchmarking: 69% of European banks still run core XVA calculations predominantly on-premises, and 75% of global dealers
Banks want AML data upgrade to complement US regulatory reform
FinCEN’s proposed overhaul sparks debate on whether it will lead to smarter or weaker supervision
Swiss franc loan losses are a grey rhino for EU consumer finance
Impact on Polish banks exposed a blind spot on modelling legal risk that has wider implications, says mBank CRO Marek Lusztyn
CROs urged to use ‘creative’ stress tests for interconnected risks
Risk Live Asia: AI, cyber security and geopolitics mean faster shock transmission across risk types
Trading platforms evolve for a cross-asset market
As trading becomes increasingly cross-asset, platforms are evolving to deliver consistent workflows, connectivity, intelligence and end-to-end execution efficiency
Industry pushes EU exchanges to solve equity post-trade frictions
Deutsche Bank, Goldman Sachs and JP Morgan join calls for mandatory cash CCP interoperability
US Treasury clearing: competition, choice and readiness move to the fore
US Treasury clearing mandates and market reforms are reshaping clearing models, risk transfer and market infrastructure ahead of key implementation milestones