Reps. Spencer Bachus (R-Ala.), Paul Gillmor (R-Ohio) and Deborah Pryce (R-Ohio), all members of the House Financial Services Committee, introduced legislation late last week aimed at protecting consumers from unfair practices within the subprime lending industry. The bill, known as the Fair Mortgage Practices Act (H.R. 3012), would:
- Create a national registration and licensing system for mortgage originators;
- Increase transparency in the mortgage process by simplifying disclosures for borrowers;
- Encourage financial institutions to evaluate a borrower's ability to repay a mortgage loan before extending credit;
- Increase support for housing counseling;
- Restrict prepayment penalties on hybrid ARMs, including 2/28s and 3/27s;
- Require escrow accounts for taxes and insurance on subprime mortgages;
- Strengthen enforcement against mortgage fraud schemes; and
- Improve integrity for appraisals.
"Both protecting borrowers and preserving access to credit are critically important if we are going to keep the dream of home ownership and all its benefits attainable for working families," Bachus said in a released statement. "This is an important issue which we have studied, debated and agreed on the need for legislation. Now we need to act."
Nationally, foreclosures are up 87 percent from June 2006, according to research from RealtyTrac released last week. Many subprime mortgages with adjustable rates are expected to reset this year and next, which may result in even more defaults and foreclosures.
"There is no larger consumer protection issue facing my home state of Ohio," says Pryce. "Ohio's foreclosure rate is now three times the national average, one in six subprime loans is delinquent, and the problem is expected to worsen. While many foreclosures result from serious illnesses and job loss, it is obvious that aggressive lending, an abundance of subprime loans, and predatory lenders have helped to create a crisis in Ohio."
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