The housing market has been going through some major pains recently, compounded by the mortgage loan crisis. Home buying and home selling have been slow as some homebuyers wait on the sidelines of the housing market. The current landscape of the housing area has engendered within Democrats in Congress to table legislation to protect American consumers from certain practices of mortgage lenders and Wall Street. Herein, a leading House Democrat proposed a bill to limit lending practices of the banking and mortgage industry, partly responsible for the rise in the mortgage defaults and foreclosures.
Ranking Democrat Rep. Barney Frank, chairman of the House Financial Services Committee, intends to stimulate states into passing stronger mortgage measures and his bill would set up strict federal measures if they don't do so.
The main purpose of the bill is to protect future borrowers, not the current estimated 2 million plus home loan mortgage borrowers with weak credit histories. These subprime mortgage borrowers with adjustable rate mortgages will again see the cost of their monthly mortgage payments jump over the next 24 months as their adjustable-rate mortgages reset.
The main components of the bill would:
· Place the onus on mortgage lenders to ensure borrowers have the financial ability to repay the home loan, as well as present consumers with a range of suitable loan options
· Ensure licensure of bank loan officers and mortgage brokers by state or federal agencies
· Prohibit mortgage lenders and mortgage brokers from receiving special incentives to procure borrowers for overly expensive home loans
· Place stringent limits, but not a complete ban, on penalties charged to borrowers for early payments
· Hold banks liable for violations of lending laws for packaged mortgage securities sold as investments
The financial services industry opposes the stricter guidelines outlined in the bill and is lobbying hard to get the bill killed. However, consumer groups believe that the bill doesn’t go far enough in holding mortgage lenders, banks, and Wall Street accountable.
Barney Frank is pushing for the bill to be passed by year-end, but the chances of its passing the Senate are unknown. The bill will face stiff opposition from Republicans and the financial services industry. It is uncertain if the bill will become more accommodative to the lending industry as it works its way through the house.
What is certain is that the Congress must do something to protect Americans from facing predatory lending practices in the future. At present, it isn’t in anyone’s interest to continue having foreclosures, as banks and mortgage lenders are unable to sell the foreclosed properties.
It would be in the interest of homeowners and lenders to work together to find a compromise, that would let the homeowners keep their homes and the lenders getting continued payment on the home loans. One solution may be to convert the many adjustable rate mortgages and interest only mortgages to fixed mortgage rates, so that the borrowers no longer have to worry about being able to meet their monthly mortgage payments because of rising interest rates. Alas, something has to be done; the consumers deserve to have protection from predatory lending practices.