The House approved legislation yesterday to strengthen consumer protections for mortgage borrowers as Congress seeks to curb the lending abuses that contributed to the subprime-mortgage crisis.
The measure, approved 291-127, would require lenders to ensure potential borrowers have the ability to repay their mortgages and strengthen oversight of mortgage brokers. It now goes to the Senate.
The bill "seeks to prevent a repetition of events that caused one of the most serious financial crises in recent times," said Rep. Barney Frank, the Massachusetts Democrat who chairs Financial Services Committee.
The measure, introduced last month by Rep. Brad Miller, a North Carolina Democrat, is part of a broader effort in Congress to curb foreclosures, strengthen consumer protection and restore confidence in the credit markets after the subprime-mortgage meltdown.
Passage of the legislation would be a setback for the mortgage industry, which opposes provisions to require lenders to ensure borrowers have a "reasonable" ability to repay. The bill also would hold companies that package mortgages into securities responsible for loans that don't meet certain standards.
Opposed by industry
The mortgage industry said the legislation would constrain credit and increase the number of lawsuits against the industry.
The White House released a statement yesterday opposing those provisions, saying they "unduly restrict access to credit for potential homebuyers and reduce refinancing opportunities for current homeowners."
Republicans tried unsuccessfully to dilute the legislation with amendments, echoing the concerns of the mortgage industry.
"This proposal is a trial lawyer's dream," said Rep. Ed Royce, a California Republican. "This kind of murky language will invite litigation from every borrower who misses a payment."
Another point of contention is that the legislation wouldn't override most state mortgage laws that have stronger provisions. The mortgage industry has pressed for a uniform national standard, arguing that having to comply with 50 different state laws raises the cost of lending.
In the Senate, Sen. Christopher J. Dodd, a candidate for the Democratic presidential nomination who also chairs the banking committee, said that he plans to introduce a companion bill soon.
Dodd's measure would establish standards against abusive practices, such as prepayment penalties and loan steering, and would "provide for strong enforcement to ensure that those standards are met," the Connecticut Democrat said in a statement.
U.S. home foreclosures doubled in the third quarter from a year earlier, according to a report this month by RealtyTrac. There were 635,159 foreclosure filings in the quarter, the research company said.