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# Legislative Bulletin.................................................November 15, 2007

**Contents:**

**H.R. 3915**---Mortgage Reform and Anti-Predatory Lending Act

H.R. 3915---Mortgage Reform and Anti-Predatory Lending Act

(*Miller, D-NC*)

**Please note the "Conservative Viewpoints" section starting on page
10.**

**[Order of Business]{.underline}**: The bill is scheduled to be
considered on Thursday, November 15^th^, subject to a (likely)
structured rule. The RSC will summarize any amendments made in order
under the rule, or any self-executed amendment, in a separate document.

**[Background]{.underline}**: The Financial Services Committee notes
that the Mortgage Bankers Association (MBA) estimates that more than
286,000 mortgage loans entered the foreclosure process in the second
quarter of 2007, which is a record high. The increase in foreclosures
and delinquencies can be traced in part to the proliferation of subprime
mortgages, especially in refinancing.

"Subprime" refers to a classification of credit applicants with
tarnished or limited credit histories and who thus pose a greater risk
of foreclosure to lenders. Subprime mortgages are mortgages to such
individuals and usually are characterized by higher interest rates,
additional fees, shorter terms, or prepayment penalties.

Some people may not qualify for conventional mortgages because of past
delinquencies, charge-offs, judgments, and bankruptcies. Other people
may not qualify for conventional mortgages because they have failed to
produce full income documentation.

<http://www.investopedia.com/terms/s/subprime_mortgage.asp>

Subprime mortgages have increased significantly in recent years (up from
\$100 billion in 2001 to \$800 billion in 2005, according to the MBA),
and there is no dominant theory as to the source of such growth.

Some observers of the mortgage market assert that some borrowers, who
would otherwise qualify for conventional mortgages, are "steered" to
subprime mortgages in what are known as "predatory practices" because
they are often more profitable than conventional mortgages.

Other observers note that subprime mortgages increased at a time when
housing prices were soaring. The subprime customers could use the
subprime mortgages as a "foot in the door" of homeownership and, because
of soaring housing prices, when the subprime mortgages were due to reset
in a few years (many subprime mortgages have lower interest rates for a
short period at the beginning of the loan, with higher adjustable rates
taking effect thereafter), they could use the increased equity in their
homes to move in to conventional mortgages (and never pay the higher
interest rates). However, as housing prices started to decrease, this
situation no longer occurred, subprime borrowers could not as easily
move in to conventional mortgages, defaults and foreclosures increased,
and those who were holding securities invested in subprime products were
stuck holding a financial hot potato that they had difficulty unloading.

**[Summary]{.underline}**: H.R. 3915 is the congressional response to
the "subprime mortgage crisis" (i.e. the increasing frequency of
mortgage defaults and foreclosures). This response includes a federal
registry and licensing of mortgage lenders, new regulations on mortgage
lending, new liability subject to lawsuit, and a new federal office
aimed at housing counseling. Highlights of the legislation by title are
as follows (with provisions of particular concern to some conservatives
highlighted in **red-bold**):

***[Title I---Residential Mortgage Loan Origination]{.underline}***

-   Creates a Nationwide Mortgage Licensing System and Registry (NMLSR)
    for the residential mortgage industry to be developed and maintained
    by the Conference of State Bank Supervisors and the American
    Association of Residential Mortgage Regulators. The NMLSR would be a
    federal system for the state licensing and registration of loan
    originators (i.e. mortgage lenders).

-   Prohibits an individual from engaging in the business of a loan
    originator without obtaining and maintaining registration as a
    registered loan originator (for bank employees) or a license and
    registration as a state-licensed loan originator (for non-bank
    employees), as well a unique identifier.

-   **Requires that all applicants to the NMLSR be fingerprinted for
    submission to the FBI.**

-   Requires that any applicant to any state for licensing and
    registration as a state-licensed loan originator has to

> \--Have not had his loan originator license revoked in the past five
> years;
>
> \--Have not been convicted of a felony in the past seven years;
>
> \--Demonstrate "financial responsibility" (as defined in the bill);
>
> \--Complete pre-licensing NMLSR-created education; and
>
> \--Pass a written test developed and administered by the NMLSR (and
> get at least 75% correct answers out of at least 100 questions).

-   Allows for license renewal only of the loan originator continues to
    maintain the minimum standards and takes continuing education
    credits, as detailed in the bill.

-   Requires that, within one year of the bill's enactment, the federal
    banking agencies (FDIC, Federal Reserve Board, Comptroller of the
    Currency, etc.) jointly develop and maintain a system for
    registering the employees of banks and their subsidiaries as
    registered loan originators with the NMLSR. Registered loan
    originators would have to furnish to the NMLSR information as above
    for the non-banking mortgage brokers, **including fingerprints** and
    personal history and experience.

-   Provides that, if a state does not participate in the licensing
    system above, the Secretary of Housing and Urban Development (HUD)
    would have to establish a backup licensing system and maintain and
    administer a system of licensing and registering loan originators
    operating in such a state as State-licensed loan originators. HUD
    could give an extension of up to six months to those states making a
    "good faith effort" (not defined) to meet the minimum standards on
    its own.

-   Provides that HUD step in to fulfill all the elements of this
    legislation, if the NMLSR is failing to meet its goals. Authorizes
    HUD to imposes penalties (up to \$5,000 a day) on violators.

-   Allows the federal banking agencies, the HUD Secretary, and the
    NMLSR to charge "reasonable" (not defined) fees to cover costs for
    maintaining and providing access to the NMLSR. Consumers could
    [not]{.underline} be charged fees for accessing registry
    information.

-   Directs the Attorney General to provide access to all criminal
    history information to states for regulating state-licensed loan
    originators, to the extent that criminal background checks are
    required under state law for licensing loan originators.

-   Shields the HUD Secretary or any state official, agency, or
    organization serving as the administrator of the NMLSR or the HUD
    system, or any officer or employee thereof, from liability for
    monetary damages for good-faith actions or omissions related to this
    legislation.

-   Requires that **[all]{.underline}** mortgage originators (not just
    federally regulated mortgage brokers) be subject to a "federal duty
    of care" that requires:

> \--licensing and registration under state or federal law;
>
> \--"diligently" working to present the consumer with a range of
> residential mortgage loan products for which the consumer likely
> qualifies and are appropriate to the consumer's existing circumstances
> (i.e., consumer has the "reasonable" ability to repay, consumer
> receives "net tangible benefit" from the loan, and the loan does not
> have "predatory" characteristics);
>
> \--making full, complete, and timely disclosures to consumers about
> each mortgage product discussed and a statement that the loan
> originator is NO an agent for the consumer;
>
> \--certifying to creditors of the required compliance with mortgage
> origination requirements under this legislation; and
>
> \--including in all loan documents the unique identifier of the
> mortgage originator.

-   Directs the Executive Branch (HUD, the Federal Trade Commission, the
    federal banking agencies) to promulgate regulations further
    clarifying the federal duty of care, as appropriate.

-   **Prohibits mortgage originators from receiving, and any person from
    directly or indirectly paying, any incentive compensation that is
    based on, or varies with, the terms of such loans (other than amount
    of principal or timing) for loans that are not prime mortgages.**

-   **Directs the federal banking agencies, in consultation with HUD and
    the Federal Trade Commission (FTC), to jointly prescribe regulations
    to prohibit:**

> **\--mortgage originators from steering any consumer to a residential
> mortgage loan that the consumer lacks a "reasonable" (not defined)
> ability to repay, does not provide the consumer a "net tangible
> benefit" (not defined), or that has predatory characteristics or
> effects ("such as equity stripping excessive fees, or abusive
> terms");**
>
> **\--mortgage originators from steering any prime consumer from a
> prime mortgage to a subprime mortgage; and**
>
> **\--"abusive or unfair" lending practices that promote disparities
> among consumers of equal credit worthiness but of different race,
> ethnicity, gender, or age.**

-   **Creates a federal cause of action (i.e. allowable lawsuits) for a
    mortgage originator's failure to comply with this legislation. The
    maximum liability could not exceed three times the total amount of
    direct and indirect compensation or gain accruing to the mortgage
    originator in connection with the violation plus the costs to the
    consumer of the action, including "reasonable" (not defined)
    attorney's fees.**

***[Title II---Minimum Standards for Mortgages]{.underline}***

-   Prohibits any creditor from making a residential mortgage loan
    unless the creditor makes a "reasonable and good faith"
    determination based on verified and documented information that, at
    the time the loan is consummated, the consumer has a reasonable
    ability to repay the loan (including all applicable taxes,
    insurance, and assessments), based on such factors as credit
    history, current income, expected income, current obligations,
    debt-to-income ratio, employment status, and other financial
    resources [excluding]{.underline} the consumer's equity in the real
    property securing the loan. The federal banking agencies, in
    consultation with the FTC, would be tasked with jointly prescribing
    regulations regarding this standard.

-   Prohibits any creditor from [refinancing]{.underline} a loan unless
    the creditor "reasonably and in good faith" determines, at the time
    the loan is consummated and on the basis of information known by or
    obtained "in good faith" by the creditor, that the refinancing would
    provide a "net tangible benefit" to the consumer. A refinanced loan
    would NOT be considered to provide a "net tangible benefit" if the
    "costs of the loan, including points, fees, and other charges,
    exceed the amount of newly advanced principal without any
    corresponding changes in the terms of the refinanced loan that are
    advantageous to the consumer." The federal banking agencies would
    have to jointly prescribe regulations further defining the term "net
    tangible benefit."

-   Allows the assumption that a loan has met the two standards above
    (reasonable ability to repay and net tangible benefit) to be
    rebutted against a creditor for certain qualified "safe harbor"
    loans, as detailed in the legislation.

-   **Allows a consumer to bring a federal action (i.e. a lawsuit)
    against a creditor, an assignee of mortgage securities, or a
    securitizer, in the amount of the rescission of the loan and the
    consumer's costs (including "reasonable"---not defined---attorney's
    fees), for a loan that violates the minimum standards for reasonable
    ability to repay or net tangible benefits, as set forth by
    regulation.**

-   A creditor, assignee, or securitizer would not be liable for such
    loan rescission if the creditor provides a "cure" to make the loan
    conform to the minimum standards within 90 days of receiving notice
    from the consumer (though an assignee or securitizer could also be
    relieved of liability by documenting its policy of not buying
    mortgages that fail to meet the minimum federal standards). A
    consumer could challenge the adequacy of the cure within six months
    of its offering.

-   Applies the liability of a creditor, assignee, or securitizer for
    three years after consummation of the loan or, for a variable rate
    loan or a negative amortization loan, the earlier of one year after
    the loan resets or six years after consummation of the loan.
    Liability would not apply to pools of loans, including the
    securitization vehicle (corporation or trust holding mortgage-backed
    securities), or investors in pools of loans.

-   **Prohibits prepayment penalties on subprime loans and requires that
    all remaining prepayment penalties expire three months before a loan
    resets.**

-   **Prohibits mandatory arbitration for resolving controversies and
    claims arising from mortgage (except reverse mortgage) loans.**

-   Requires a servicer of a residential mortgage loan to provide annual
    notice (or whenever there is change in ownership of the loan) to the
    consumer of the identity of the creditor or assignee who should be
    contacted concerning the consumer's loan rights. Negative
    amortization loans (loans featuring interest payments less than the
    amounts actually owed---i.e. deferred interest payments) to a
    first-time borrower would be prohibited unless the creditor makes
    certain disclosures to the consumer and the consumer has received
    homeownership counseling from a HUD-certified organization or
    counselor.

-   **Explicitly provides that the liability and remedy provisions of
    this legislation trump any related provisions in state laws.** State
    laws against creditors and other state laws not related to this
    legislation would not be superseded.

-   Doubles the amount of certain statutory civil liability penalties
    currently applicable under the Truth in Lending Act (into which the
    provisions of H.R. 3915 would be inserted) and extends the statute
    of limitations from one year to three years.

-   Creates a variety of new disclosure requirements for creditors (that
    would have to be made at the earlier of the extension of credit or
    three days before the closing), as follows:

> \--the maximum amount of regular payment a consumer has to make on a
> variable rate or otherwise variable payment mortgage;
>
> \--the fact that mortgage payments will be increased to cover taxes
> and insurance and the monthly dollar amount a consumer will pay to
> cover taxes and insurance in the first year of the mortgage (for a
> residential mortgage loan with an escrow or impound account for the
> payment of taxes, insurance, and assessments);
>
> \-- the amount of initial monthly payment for principal and interest;
> the amount of initial monthly payment, including the amount deposited
> in an escrow or impound to pay for taxes, insurance, and assessments;
> the amount of the fully indexed monthly payment for principal and
> interest; and the amount of fully indexed monthly payment deposited in
> an escrow or impound to pay for taxes, insurance, and assessments (for
> a variable rate residential mortgage with an escrow or impound
> account);
>
> \-- the aggregate amount of settlement charges;
>
> \--the amount of charges included in a mortgage;
>
> \--the amount of charges a consumer must pay at closing;
>
> \--the approximate amount of the wholesale rate of funds;
>
> \--the aggregate amount of other fees or required payments;
>
> \--the aggregate amount of fees paid to a mortgage originator;
>
> \--the amount of fees paid directly by a consumer;
>
> \--any additional amounts received by a mortgage originator from a
> creditor based on the interest rate of the loan;
>
> \--a warning that payments will vary based on interest rate changes
> (for variable rate or variable payment mortgages); and
>
> \--that a consumer is not required to consummate a mortgage
> transaction simply because a consumer received disclosures or signed a
> loan application.

-   Authorizes total additional appropriations to the Attorney General
    for the FY2008-FY2012 period, as follows:

> \--\$31.25 million to support the employment of 30 additional FBI
> agents and two additional dedicated prosecutors to coordinate
> prosecution of mortgage fraud efforts with the offices of the United
> States Attorneys;
>
> \--\$750,000 to support the operations of interagency task forces of
> the FBI in the areas with the fifteen highest concentrations of
> mortgage fraud.

-   Provides that the provisions of this title would become effective
    [prospectively]{.underline}, on or after the effective date of the
    regulations promulgated by the respective executive agencies.

***[Title III---High-Cost Mortgages]{.underline}***

*In response to reports of predatory lending practices in home equity
lending in the early 1990s, Congress enacted the Home Ownership and
Equity Protection Act (HOEPA) in 1994, which covers home equity loans
but not purchase-money mortgages (mortgages in which the buyer borrows
money from the seller, rather than from a bank). Loans are classified as
"high-cost home loans" under HOEPA because of their high annual
percentage rates (APRs) or because their points and fees trigger certain
prohibitions and/or disclosures. Under HOEPA, the Federal Reserve Board
has the authority to prevent "unfair and deceptive" lending by writing
regulations governing state and federal lenders.*

-   Adds purchase-money mortgages and open-end loans (revolving lines of
    credit that are always open up to a limit) to HOEPA.

-   Codifies the current APR trigger at 8% above comparable Treasuries
    for first mortgages and comparable Treasuries plus 10% for
    subordinate mortgages.

-   Lowers the points-and-fees trigger from 8% to 5% for most loans
    (except those secured by personal property).

-   Creates a third trigger for loans with prepayment penalties that
    exceed 2% or 36 months duration and expands the definition of points
    and fees.

-   **Prohibits balloon payments (a lump-sum payment due at the end of a
    mortgage) on HOEPA loans unless the payment schedule is adjusted to
    the seasonal or irregular income of the consumer.**

-   **Prohibits prepayment penalties on HOEPA loans with principal
    amounts below the Federal Housing Administration loan limit for a
    given geographical area.**

-   Prohibits creditors from extending credit to a consumer under a
    high-cost mortgage unless a "reasonable" (not defined) creditor
    would believe at the time the mortgage is closed that the consumer
    would be able to make the scheduled payments associated with the
    mortgage, based on a consideration of current and expected income,
    current obligations, employment status, and other financial
    resources other than equity in the residence.

-   Prohibits creditors from:

> \--encouraging that borrowers default on an existing loan when
> refinancing such existing loan with a high-cost mortgage;
>
> \--charging multiple late fees for a high-cost mortgage on the same
> delinquent payment;
>
> \--unilaterally accelerating a high-cost mortgage;
>
> \--directly or indirectly financing points and fees for high-cost
> mortgages;
>
> \--structuring a high-cost mortgage to evade HOEPA protections;
>
> \--modifying or deferring fees unless they can be proven beneficial to
> the consumer;
>
> \--providing a high-cost mortgage to a consumer unless the creditor
> has received a certification that the consumer received pre-loan
> counseling from a HUD-approved entity; and
>
> \--knowingly or intentionally engaging in flipping (refinancing with
> no tangible net benefit to the consumer) in connection with a
> high-cost mortgage.

-   Allows creditors to correct non-bona fide errors within 30 days of
    the loan closing and prior to the institution of any action (60 days
    for bona fide error).

-   Directs the Federal Reserve Board to implement regulations under
    this title within six months of enactment and deems the amendments
    made by this title effective upon enactment (and applicable to
    high-cost mortgages consummated on or after that date).

***[Title IV---Office of Housing Counseling]{.underline}***

-   Establishes the Office of Housing Counseling under the Office of the
    HUD Secretary.

-   Makes the office responsible for all HUD homeownership and rental
    housing counseling programs (including matters of refinancing and
    foreclosure), and for establishing, coordinating, and administering
    all regulations, requirements, standards, and performance measures
    under the programs that relate to housing counseling, homeownership
    counseling, mortgage-related counseling, and rental housing
    counseling.

-   Directs the Secretary to establish standards for materials and forms
    used by counseling service providers, and provide for the
    certification of various computer software programs for consumers to
    use in evaluating different residential mortgage loan proposals. The
    certified software programs would be used to supplement, not
    replace, housing counseling, and only in connection with the
    assistance of certified housing counselors.

-   Authorizes \$3 million for each of fiscal years 2008-2010 for the
    Secretary to develop, implement, and conduct national public service
    multimedia campaigns to make "potentially vulnerable" consumers
    (including the elderly, the poor, people who don't know English very
    well, people facing mortgage foreclosure, and people considering a
    subprime mortgage) aware of the existence and benefits of
    homeownership counseling.

-   Directs the Secretary to provide advice and technical assistance to
    states, units of local government, and non-profit organizations on
    how they can best educate people about mortgages, refinancing, home
    equity loans, and home repair loans.

-   Directs the Secretary to make grants for homeownership or rental
    counseling to states, units of local government, and non-profit
    organizations, subject to standards and guidelines for assistance
    eligibility created by the Secretary.

-   **Authorizes \$180 million over four years for the operations of the
    Office of Housing Counseling, homeownership and rental counseling
    assistance grants, the establishment of materials and forms
    standards, computer software certification, and the national public
    service multimedia campaigns required by this title.**

-   Instructs the Secretary to prepare a booklet at least once every
    five years to help consumers applying for federally related mortgage
    loans to understand the nature and costs of real estate settlement
    services (such as balloon payments, prepayment penalties, variable
    interest rates, escrow accounts, home inspections, consumer rights,
    etc.). The booklet would have to be produced "in various languages
    and cultural styles, as the Secretary determines to be appropriate,
    so that the booklet is understandable and accessible to homebuyers
    in different ethnic and cultural backgrounds."

***[Title V---Mortgage Disclosures under Real Estate Settlement
Procedures Act of 1974]{.underline}***

-   Requires additional disclosures in a good faith estimate (GFE) under
    the Real Estate Settlement Procedures Act for federally related
    mortgage loans. A GFE would have to include the loan amount, whether
    the loan is a fixed or variable rate loan, the loan term, the
    estimated interest rate(s), the total estimated monthly payment, the
    rate lock period, any prepayment penalty, any balloon payment, the
    total estimated settlement charge, the total estimated down payment,
    and the total estimated cash needed at closing.

-   Instructs the HUD Secretary, in consultation with the Secretary of
    Veterans Affairs, the Federal Deposit Insurance Corporation, and the
    Director of the Office of Thrift Supervision, to develop a standard
    form for GFE disclosures (within certain parameters detailed in the
    bill) that would have to be used in all transactions in the United
    States that involve federally related mortgage loans.

**[RSC Bonus Facts]{.underline}**: According to the [*Wall Street
Journal*](http://online.wsj.com/article/SB119318185110369077.html),
roughly 35% of homeowners have no mortgage debt remaining on their
homes. Of those homeowners still paying a mortgage, 95% are paying on
time. And even in the risky category of subprime adjustable-rate loans,
more than 83% are still paying on time. (NOTE: The Mortgage Bankers
Association puts this figure at 85%, instead of 83%.)

**[Committee Action]{.underline}**: On October 22, 2007, the bill was
referred to the Financial Services Committee, which, on November 6^th^,
marked up and ordered the bill reported (as amended with a complete
substitute) to the full House by voice vote.

**[Conservative Viewpoints]{.underline}**: Many conservatives have
expressed concerns about H.R. 3915, while other conservatives have
expressed support for the legislation. Highlights of these varying
conservative viewpoints are as follows:

[Concerns]{.underline}: Some conservatives on the House Financial
Services Committee have asserted that H.R. 3915 would hurt, rather than
help, the very consumers---those who can only obtain subprime
mortgages---for which it is intended to provide relief. As some of these
conservatives wrote in the "Dissenting Views" in [House Report
110-441](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr441)),
"Never before have we adopted such far-reaching government restrictions
and limitations on loan terms and products and underwriting decisions in
the private market, that affect the ability of thousands of this
country\'s borrowers to obtain a mortgage loan to finance or refinance
their home."

[]{.mark}

Specifically, the concerns expressed by some conservatives can be
summarized as follows:

-   [Discouragement of Lending and Investing]{.underline}. The bill's
    numerous and multilayered regulations on mortgage lenders could
    discourage some lenders from offering anything but the least risky,
    most secure prime mortgages. Some lenders may not want to take the
    chance with subprime products and risk being held liable for
    imperfections in the borrower's financial situation, yet subprime
    loans are many people's financial foot in the door to a life of
    homeownership. The bill discounts the notion that businesses and
    individuals change their behavior when faced with new, burdensome
    regulations. As Stuart Saft wrote in *The Wall Street Journal* this
    past weekend, "Capital, like water, seeks its own level. If the
    people who buy the securitized loans, and the institutions who
    invest in pools of mortgage loans, are no longer secure in being
    able to get their money back or the interest paid, they will find
    other investments, and countries, where they can."

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-   [Fingerprinting Lenders]{.underline}. The bill's FBI-fingerprinting
    requirement as a condition of offering mortgages would amount to a
    significant invasion of privacy.

-   [Intrusion into the Private Market]{.underline}. The bill would
    prohibit a variety of legitimate private-market business practices
    for lenders (such as certain incentive-based compensation,
    arbitration, and certain determinations of creditworthiness) and
    would thus amount to an unwelcome federal micromanagement of private
    markets and private lives. Such intrusion could yield *fewer* loan
    choices for consumers.

-   [Definitional Uncertainty]{.underline}. The bill would create
    numerous federal duties and related liabilities for loan originators
    that are somewhat subjective, yet would leave the bulk of the
    operational definitions (such as "appropriate," "ability to repay,"
    and "net tangible benefit" and their related terms) undefined,
    vaguely defined, or to be defined by regulators sometime in the
    future.

-   [Anti-Market Philosophical Approach]{.underline}. The bill is based
    on the premise that the subprime mortgage "crisis" is primarily the
    fault of corporations, Wall Street, and unscrupulous lenders, and
    that borrowers who default are all innocent, weak-minded victims who
    had financial decisions thrust upon them without their knowledge or
    without the ability to say no. This premise overstates the
    deceptiveness of lenders, understates the deliberateness of
    borrowers, and discounts the notion that freer markets can bring
    natural ups and natural downs based on the aggregate choices of
    people in such markets. According to the Mortgage Bankers
    Association, National Delinquency Survey for the second quarter of
    2007, 85% of current subprime loans are being paid on time, while
    only 15% are in default or foreclosure.

[]{.mark}

-   [Excessive Liability and New Lawsuits]{.underline}. The bill would
    make creditors liable for compliance with the bill's numerous
    requirements. In addition to a liability of three times the total
    amount of "direct and indirect compensation or gain accruing" in
    connection with a violation, the bill would create an extended
    loan-rescission right for up to six years for certain adjustable
    rate loans.

-   [Preemption of State Laws]{.underline}. The bill would preempt state
    laws in several respects. For example, the bill would preempt state
    foreclosure laws that allow a foreclosing creditor to evict a
    renter. This provision could greatly disrupt an investor's ability
    to transfer a property after foreclosure, possibly yielding higher
    interest rates, especially on higher risk loans, to compensate for
    the potential of increased losses in the case of a foreclosure.

-   [New Restrictions on High-Cost Refinancing Loans]{.underline}. The
    bill would lower the triggers for HOEPA loans, special, restricted
    loans that are subject to additional disclosures to borrowers, have
    assignee liability attached to them, and cannot be securitized
    (meaning lenders must keep them on their books). As a result, HOEPA
    loans are very rare in today's market, with only about 15,000 HOEPA
    loans made in 2006 out of 10,000,000 total loans made in that year.
    Generally, under current law the HOEPA Act is triggered when a loan
    either has an APR that exceeds a set level linked to Treasury
    securities or has total points and fees that exceed 8% of the total
    loan amount. This bill would lower the points and fee trigger from
    8% to 5% and prohibit the financing of points and fees in the loan.
    The practical effect of this would be to eliminate this form of loan
    from the marketplace since lenders would not want the liability
    exposure or would find the reduced profit margin to be too low for
    them to offer the loan in the first place.

-   [Congressional Haste]{.underline}. Some conservatives have stated
    that this legislation amounts to congressional overreaction to a
    market-based situation that has not yet been given enough time to
    correct itself. Some have argued that the market has already
    corrected itself, with major lenders saying, for example, that they
    will no longer offer stated income mortgages (loans based on the
    income as stated by the borrower, rather than as objectively
    verified by the lender) or zero-down mortgages. Additionally, FDIC
    Chairman Sheila Bair has proposed that the mortgage companies
    [voluntarily]{.underline} convert subprime loans that are still
    performing into fixed-rate loans at the lower variable rate (before
    the loans reset at higher rates and force numerous foreclosures).
    Countrywide Financial announced last month that it will modify the
    terms of \$16 billion in adjustable-rate mortgages through the end
    of next year. Furthermore, some observers have noted that there are
    already laws against fraud and theft. Artificially correcting a
    problem that is in the process of correcting itself could create
    more problems than it solves (not unlike how the infamous
    Smoot-Hawley tariffs exacerbated the Great Depression last century).

[Support]{.underline}: Conservative support for H.R. 3915 is best
represented by RSC Member and Ranking Member on the Financial Services
Committee, Spencer Bachus (R-AL). Rep. Bachus' main points are as
follows:

-   [Tighter Definitions Reflecting Current Industry
    Practice]{.underline}**.** The standard imposed on loan originators
    to present consumers with a range of "appropriate" loan products has
    been modified to tie "appropriate" loans to a consumer's "ability to
    repay," a standard that federal banking regulators have adopted in
    their guidance on mortgage lending practices and that the industry
    has already largely embraced. Other "Duty of Care" language has been
    revised since the bill as first introduced to more clearly define
    the standards to which loan originators must adhere.

-   [Debt-to-Income Ratio More Flexible]{.underline}. As introduced,
    H.R. 3915 would have essentially provided that no subprime loan
    could be made to a borrower for whom the ratio of debt to income
    (DTI) on the loan exceeded 50 percent. The reported bill strikes
    this fixed percentage and instead leaves it to the discretion of the
    federal banking regulators to set the percentage at an appropriate
    level. In addition, DTI has become one of several factors rather
    than an absolute requirement for a loan to qualify for the "safe
    harbor" established by the legislation, ensuring that subprime
    borrowers who may exceed the DTI ratio set by the regulators but are
    otherwise creditworthy will still have access to loans.

-   ["Net Tangible Benefit" More Tightly Defined]{.underline}. The
    reported bill promotes greater flexibility in the underwriting
    process by expanding the definition of what constitutes a "net
    tangible benefit" to borrowers who refinance their mortgages, to
    include a much broader range of terms that are advantageous to
    consumers.

-   [True "Steering" Prohibited While Other Incentives
    Preserved]{.underline}. The bill's "anti-steering" provisions do not
    reduce "legitimate" incentives paid to honest loan originators.
    Incentives based on the volume of loans would remain, and
    restrictions on incentives based on interest rates charged would
    apply *only* to subprime (not prime) loans. The bill no longer
    contains the conditions that regulators protect the "consumer's
    interest" and guarantee them "best terms."

-   [Nationwide Registry a Benefit to Lenders and
    Borrowers]{.underline}. A nationwide registry will improve the flow
    of information between regulators and prevent fraud, by creating a
    system for tracking unethical mortgage professionals who victimize
    consumers in one jurisdiction and then move undetected to another
    area of the country to perpetrate additional frauds. In addition,
    prospective homebuyers and other consumers will have the ability to
    access basic information about the employment backgrounds and
    disciplinary records (if any) of loan originators with whom they are
    considering doing business.

-   [Housing Counseling Is a Benefit to the Market]{.underline}. The
    housing counseling provisions in the bill include federal outreach
    activities that will help avoid repetition of recent mortgage market
    problems by improving financial literacy and the capability of
    borrowers to understand these complex transactions in which many
    engage only once or twice in a lifetime.

-   [Uniform National Standard for Assignee Liability]{.underline}. The
    bill now provides for a uniform national standard for assignee
    liability, ensuring that national securities markets can continue to
    provide the liquidity necessary to fund mortgage loans. Such a
    federal standard would arguably be less stringent than varying state
    standards. The imposition of varying state and local standards on
    assignee liability permitted by the bill as introduced would have
    impaired the functioning of a national secondary mortgage market.  

[]{.mark}

**[Administration Position]{.underline}**: A Statement of Administration
Policy (SAP) for H.R. 3915 notes several concerns about the bill,
including the bill's specific underwriting standards, assignee liability
provisions, and the subjective obligations for mortgage originators.
"H.R. 3915...could overly constrict the primary and secondary markets
for mortgage finance," the SAP argues. The SAP does [NOT]{.underline}
include a veto threat of any kind. Read the complete SAP
[here](http://www.whitehouse.gov/omb/legislative/sap/110-1/hr3915sap-r.pdf).

**[Cost to Taxpayers]{.underline}**: CBO estimates that [H.R.
3915](http://www.cbo.gov/ftpdocs/88xx/doc8804/hr3915.pdf), as reported
from the Financial Services Committee, would authorize appropriations of
\$74 million in FY2008 and \$330 million over the FY2008-FY2012 period.
The bill would also increase mandatory spending by \$15 million in
FY2008 and by \$65 million over the FY2008-FY2012 period. Lastly, the
bill would increase revenues by \$15 million in FY2008 and by \$72
million over the FY2008-FY2012 period.

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}**: Yes, the bill would:

-   Create a federal registry and licensing process for mortgage
    lenders;

-   Require mortgage lenders to be fingerprinted;

-   Prohibit certain business practices in mortgage lending (such as
    incentive compensation);

-   Preempt certain state laws, as explained below;

-   Create a new HUD office; and

-   Create a new federal grant program.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}**: Yes, as follows:

Intergovernmental:

-   requiring states to ensure that mortgage originators who apply for
    state licenses or renewals meet minimum standards (which, according
    to CBO, would likely force states to license employees of some
    financial institutions that are not currently required to be
    licensed under state law); and

-   superseding state laws that allow individuals to seek compensation
    from entities that issue certain securities

Private-Sector:

-   creating a licensing and registration system for mortgage loan
    originators (including a fingerprinting requirement for lenders);

-   setting new mortgage origination standards; and

-   establishing requirements for high-cost mortgages.

**[Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax
Benefits/Limited Tariff Benefits?]{.underline}**: The Financial Services
Committee, in [House Report
110-441](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr441)),
asserts that, "H.R. 3915 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in clause 9
of rule XXI."

**[Constitutional Authority]{.underline}**: The Financial Services
Committee, in [House Report
110-441](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr441)),
cites constitutional authority in Article I, Section 8, Clauses 1 and 3
(the congressional powers to provide for the general welfare and to
regulate interstate commerce, respectively).

**[Outside Organizations]{.underline}**: The following positions of key
organizations on the bill [as reported]{.underline} from committee were
available at press time:

Supporting H.R. 3915:

-   National Association of REALTORS; and

-   Conference of State Bank Supervisors (though still expressing some
    concerns).

Remaining functionally neutral on H.R. 3915:

-   American Bankers Association (though still expressing some
    concerns);

-   Consumer Data Industry Association;

-   Fannie Mae;

-   Freddie Mac;

-   Independent Community Bankers of America;

-   National Association of Federal Credit Unions (though still
    expressing some concerns);

-   National Association of Home Builders;

-   National Association of Mortgage Brokers (though still expressing
    some concerns); and

-   Securities Industry and Financial Markets Association.

Opposing H.R. 3915:

-   American Financial Services Association;

-   Coalition on Urban Renewal and Education;

-   Consumer Mortgage Coalition;

-   Financial Services Roundtable, Housing Policy Council;

-   FreedomWorks (key-voting); and

-   Mortgage Bankers Association (possibly key-voting).

The Heritage Foundation has also expressed
[opposition](http://www.heritage.org/Research/Economy/wm1703.cfm) to
some of the policies embodied in H.R. 3915, arguing that they would
impose new burdens and limits on moderate-income borrowers. Desmond
Lachman at the American Enterprise Institute (AEI) has expressed
[opposition](http://www.aei.org/publications/filter.all,pubID.27091/pub_detail.asp)
to Congress taking a regulatory, over-reactive approach, rather than
relying on market forces to resolve the subprime situation.

**[RSC Staff Contact]{.underline}**: Paul S. Teller,
<paul.teller@mail.house.gov>, (202) 226-9718