The Mortgage Reform and Anti-Predatory Lending Act

In May of 2009, the House of Representatives passed a mortgage reform bill known as H.R. 1728. Although this act, which is known as the Mortgage Reform and Anti-Predatory Lending Act and is part of the Truth-in-Lending Act, has been passed by the House of Representatives, it is still being debated in the Senate. Nonetheless, the ins and outs of the proposed act are already causing some giant waves among brokers and lenders.

What is the Truth-In-Lending Act?

H.R. 1728 is meant to make modifications to the Truth-in-Lending Act that is already in place. The Truth-in-Lending Act is intended to make mortgage lenders and brokers more accountable about the loans they make. As part of the Truth-in-Lending Act, lenders would be required to retain a 5% interest in any loans that they sell. In theory, this will make lenders put more thought into the loans that they make rather than simply making loans with the intent of selling them later. Furthermore, before selling the loans, lenders and brokers are required to demonstrate the loans are still viable. The H.R. 1728 Act will take this legislation to the next level.

What is the H.R. 1728 Act?

With the H.R. 1728, legislators are trying to achieve the right mixture of provisions in order to prevent people from getting approved for loans who really shouldn't be getting approval. Therefore, some provisions that are written in the act include:

• Prohibiting certain prepayment penalties, negative amortization and single premium credit
• Prohibiting the lending of high-cost mortgages that include balloon payments and provisions that allow repayment to be accelerated
• Prohibiting lenders from making loans even if the borrower has not demonstrated an ability to repay
• Prohibiting mandatory arbitration, except for in the case of reverse mortgages
• Prohibiting lenders from advising borrowers to default on a loan so they can take out a costly mortgage in order to refinance the debt
• Prohibiting high-costs mortgages from being structured as a different type of loan in order to avoid the legal restrictions that are placed on these types of loans
• Requiring lenders to provide borrows with at least six months notice before resetting the rates on hybrid adjustable-rate mortgages
• Authorizing the Department of Housing and Urban Development to create a counseling office to provide guidance to renters and homeowners

Although all of these provisions are being proposed to help protect consumers and to prevent the situation that resulted in our current economic troubles, it is unfortunate that the government has to put regulations into place that prevent lenders from making loans that really aren't viable. It also serves as a wake-up call to consumers who have assumed that lenders will not approve their mortgage applications unless they are capable of repaying the loan. Whether or not the act will pass remains to be seen, but one thing is clear: changes are necessary in order to prevent an economic downfall to develop once more as the result of lenders giving out loans to consumers who aren't actually ready to handle them.