Posted Oct 23, 2007 12:36 am CDT
After months of concern over the state of the nation’s mortgage market, a leading Democrat has introduced legislation in the House of Representatives that would create a consumer bill of rights in home lending transactions.
It would require “a mortgage originator to act solely in the best interest of the consumer, including finding the residential mortgage loan that best meets the needs of the borrower,” according to the text of the proposed legislation introduced by U.S. Rep. Barney Frank of Massachusetts.
Specifically, the bill would require lenders to establish that borrowers have adequate income to purchase the home they are buying, and would eliminate prepayment penalties, among other provisions, reports the Los Angeles Times. It would also require mortgage brokers and bank loan officers to be licensed.
“While many lawmakers have sketched their own version of mortgage reform, Frank’s bill will likely serve as an important blueprint since he leads the key committee,” reports Reuters, referring to Frank’s role as chairman of the House Financial Services Committee.
However, the bill is targeted toward protecting the interests of future borrowers, rather than saving some 2.5 million homeowners who are at risk of losing their homes because of aggressive lending in recent years to individuals with borderline credit, notes the Associated Press.
As discussed in recent ABAJournal.com posts, there has been a huge surge of mortgage foreclosures this year, attributed both to aggressive lending and a substantial amount of mortgage fraud in Florida, in Georgia and elsewhere throughout the country.
So far, legislators in some states have reportedly been more active than their federal counterparts in seeking to close legal loopholes that have allowed mortgage lenders to make risky loans. The proposed Frank bill apparently would set a floor rather than a ceiling for such efforts, leaving states free to enact more stringent regulatory measures if they wish.