Greater regulation is needed to ensure that America’s most vulnerable home-loan borrowers are protected from unscrupulous lenders, as well as confusing and pricey mortgages, consumer advocates said Tuesday.
“We have a regulatory failure here on a level that is frankly putting the economy at risk,” said David Berenbaum, executive vice president of the National Community Reinvestment Coalition, at a Senate banking subcommittee hearing.
Consumer groups at the hearing spoke in favor of the proposed Borrower’s Protection Act of 2007. The act would increase protections for subprime borrowers typically those with lower-incomes or blemished credit histories with new regulations and requirements for various mortgage originators.
“It’s clear that the subprime market has been the Wild West of the mortgage industry for far too long,” said Sen. Charles Schumer, D-N.Y., a co-sponsor of the proposed legislation.
The bill would create more responsibility for home mortgage brokers, prohibit originators from steering consumers to loans that are not “reasonably advantageous” and make lenders liable for mortgage brokers’ omissions in connection with more-expensive loans that could end up in higher fees, among other acts.
Subprime borrowers have been steered toward loans that are needlessly expensive so that brokers and others can reap higher profits, critics claim. In particular, adjustable rate mortgages can end up costing much more than borrowers anticipate when the loans reset from an initial “teaser” rate.
The Borrower’s Protection Act would also:
Require mortgage originators to verify borrowers’ reasonable ability to pay the principal and interest, real estate taxes, and other fees associated with a loan.
Prohibit mortgage originators from entering into a loan when the originator has reason to believe that the appraiser of the property securing the loan failed to act in good faith and fair dealing in its appraisal.
Prohibit a mortgage originator from seeking to influence an appraiser or encouraging a targeted value.