**[H.R. 3915 -- The Mortgage Reform and Anti-Predatory Lending
Act]{.underline}**

On November 15, 2007, the House passed H.R. 3915, the Mortgage Reform
and Anti-Predatory Lending Act. H.R. 3915 is a dramatic departure from
current law. The bill will have an unintended negative impact on banks
and credit-worthy homebuyers.

H.R. 3915 is a bill that, in an attempt to improve conditions in the
housing market, will end up making it more difficult and more expensive
for hard-working Americans to obtain a mortgage. If this bill is adopted
into law, its effects could be as severe in the housing market as
Sarbanes-Oxley was in the financial industry. Like Sarbanes-Oxley, this
is a rushed response to a financial crisis.

Never before has Congress attempted to adopt 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.

While the bill\'s breadth will affect the mortgage markets serving all
segments of society, its negative impact on the availability and
affordability of credit to minority borrowers and borrowers with
blemished credit histories will be most dire. This bill will only damage
the housing markets further by restricting credit and promoting
litigation. And those who are MOST in need -- those in delinquencies or
facing foreclosure - will be in an even WORSE position should this bill
become law.

The reality is that the market itself is already reacting -- and some
would say overreacting -- to the current meltdown in the mortgage
market. Congress should give the market additional time to self-correct
and not impede market recovery with over-zealous regulation.

**[H.R. 3915 Summary]{.underline}**

**[Title I:]{.underline}** This section would:

-   Establish significant increases in licensing and registration
    requirements for mortgage brokers and bankers, and registration bank
    employees who originate mortgages in more than de minimis amounts by
    their primary regulators. A Nationwide Mortgage Licensing System and
    Registry would be created;

-   Prohibit mortgage originators from receiving, and any person from
    directly or indirectly paying, any incentive compensation that is
    based on loans that are not prime mortgages;

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

-   Create 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:]{.underline}** This section would:

-   Set minimum loan origination standards, including a requirement that
    originators determine whether a borrower has the reasonable ability
    to repay the loan. A safe harbor would be provided for certain loans
    that meet prescribed underwriting criteria and some limited
    liability would be extended to assignees and securitizers that meet
    four tests;

-   Allow 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; and

-   Allow preemption of state laws for assignee/securitizer liability.
    States would be permitted to pass laws or add remedies relating to
    the liability of other parties, including lenders.

**[Title III:]{.underline}** The worst part of this bill is Title III,
which expands the types of loans that will fall under HOEPA (Home
Ownership and Equity Protection Act) requirements. This section would:

-   Lower the HOEPA thresholds, including many additional items in the
    \`points and fees\' calculation, which would result in far too many
    loans falling under HOEPA restrictions. Very few lenders have any
    appetite for making HOEPA loans, so this would result in the
    establishment of a low usury ceiling - and one that would
    unintentionally cause many loans to be unsellable.

As of last year, approximately 10 million loans were made -- only 15,200
of these were subprime loans. (That's .00152 of loans made in 2007 - or
.152%. of loans made in 2007.)

This expansion of HOEPA is based on the most restrictive state predatory
lending law in the country -- North Carolina's law. The North Carolina
law had the following effect:

-   **There was a [1.2 percent]{.underline} decline in overall lending
    in predominately\
    minority neighborhoods** in North Carolina after passage of the law,
    compared with a [5.2 percent increase]{.underline} in minority
    neighborhoods in the comparison states.

-   **Loans by subprime lenders declined by [8.1 percent]{.underline}**
    and loans by prime lenders increased 0.7 percent. In the comparison
    states, loans by subprime lenders [increased 4.6
    percent]{.underline} and loans by prime lenders increased 5.4
    percent.

-   There was a **decline of [11.4 percent]{.underline} in subprime
    refinance loans in\
    North Carolina**, compared to a [4.0 percent increase]{.underline}
    in the comparison\
    states. However, subprime loans to purchase homes also grew at a
    much\
    slower pace in North Carolina than in the comparison states, up
    123.9\
    percent versus 145.8 percent.

-   Thus, laws primarily aimed at refinance practices [caused subprime
    lenders to withdraw completely from North Carolina]{.underline} and
    reduce credit available for purchasing a home.

**[Titles IV and V:]{.underline}** These sections would:

-   Expand the scope of high-cost mortgages by reducing the annual
    percentage rate trigger from 10 percent to 8 percent and lower the
    points-and-fees trigger from 8 percent to 5 percent; and

-   Establish an Office of Housing Counseling within the Department of
    Housing and Urban Development.

**[Major Points of Concern]{.underline}**

-   H.R. 3915 places an enormous burden on lenders, holding them to an
    unreasonable standard of knowledge of the borrower\'s behavior. The
    bill creates federal duties for loan originators that are highly
    subjective, and thus difficult to define for purposes of compliance
    and potential liability.

-   **Highly Subjective Duties and Standards.** Any federal duty
    requiring a loan originator to identify loan products that are
    "appropriate" for the consumer, including those having a "net
    tangible benefit," necessitate a determination whether the loan is
    suitable for the borrower. This type of standard can always be
    second-guessed, and should be determined by the borrower after
    disclosure of the loan terms, not by the originator who is not the
    agent of the borrower.

-   **Litigation Nightmare.** The bill is proscriptive, and a trial
    lawyer's dream. Unclear bill language will invite litigation from
    borrowers, once again placing the onus on the lender.

-   **Rebuttable Presumption.** The bill creates a presumption that
    qualified safe harbor loans (those that meet a number of
    restrictions) will have a "reasonable ability to repay" and a "net
    tangible benefit," but that presumption is rebuttable. As a result,
    there are no safe harbors to ensure lenders can determine if the
    loan is compliant and thus insulated from challenge *in advance of
    making a loan*. Because of the subjective standards mentioned above,
    lenders will be very hesitant to make loans subject to this
    presumption because they will be unable to dispose of even
    unmeritorious litigation through a motion to dismiss, and thus will
    incur significant additional costs and exposure.

-   **Excessive Potential Liability.** The bill creates excessive
    potential liability for creditors for compliance with the bill's
    numerous requirements. In addition to a potential liability of three
    times the total amount "of direct and indirect compensation or gain
    accruing" in connection with the violation, which arguably includes
    all interest and fees, the bill creates an extended rescission right
    for up to 6 years for certain adjustable rate loans, and potentially
    allows class action rescission claims against creditors for vague
    and subjective standards.

-   **Other Restrictions on Loan Terms.** The bill contains various
    provisions that prohibit or severely restrict loan terms that
    consumers today use to their benefit, including:

    -   arbitration, which is often fast, fair and affordable relief to
        consumers, who choose not to go to court; and

    -   yield spread premiums, on higher cost loans, which has been a
        valuable mechanism for borrowers to finance upfront broker
        compensation rather than pay it at closing.

-   **Preemption of State Foreclosure Laws.** The bill preempts state
    foreclosure laws that permit a foreclosing creditor to evict a
    renter in possession.