A massive new mortgage reform bill, introduced by House financial services committee chairman, Barney Frank, has Washington real estate and banking groups buzzing.
The bill, which is expected to pass the House easily this month and go to the Senate in May, would change home mortgage lending fundamentally.
Here's how. It would discourage lenders from making anything but "plain vanilla" 30-year fixed rate mortgages with full documentation and strict underwriting.
It would require lenders that originate other types of loans to retain at least a five percent ownership stake in the loan for its full term, even if it gets sold in the secondary mortgage bond market.
If the loan ultimately went bad, the originator would own a piece of the loss -- unlike today's system, where they can sell them and forget them.
A second major change -- the bill would prohibit loan officers from receiving any fee tied to the interest rate or terms of the mortgage. During the boom years, mortgage brokers routinely were paid fatter fees by Wall Street for delivering higher-rate, higher-risk mortgages.
The bill also creates what it calls a new "federal duty of care" that would legally require lenders to ensure that a mortgage is suitable for the borrower in terms of income and ability to repay.
All refinances would have to pass what the bill calls a "net tangible benefit" test before closing. In other words, homeowners couldn't be refinanced unless the replacement loan is better for them financially than their existing loan.
Critics say forcing small and mid-sized mortgage companies to set aside capital to cover potential losses would put many of them in financial hardship.
Supporters say the 151-page bill would have gone a long way to preventing mortgage lending excesses during the housing boom, especially no-documentation, negative amortization and zero down payment deals, had it been federal law before the boom started in 2002 or 2003.
For more information on real estate and financing feel free to contact bill.swanson@cbshome.com.
The bill, which is expected to pass the House easily this month and go to the Senate in May, would change home mortgage lending fundamentally.
Here's how. It would discourage lenders from making anything but "plain vanilla" 30-year fixed rate mortgages with full documentation and strict underwriting.
It would require lenders that originate other types of loans to retain at least a five percent ownership stake in the loan for its full term, even if it gets sold in the secondary mortgage bond market.
If the loan ultimately went bad, the originator would own a piece of the loss -- unlike today's system, where they can sell them and forget them.
A second major change -- the bill would prohibit loan officers from receiving any fee tied to the interest rate or terms of the mortgage. During the boom years, mortgage brokers routinely were paid fatter fees by Wall Street for delivering higher-rate, higher-risk mortgages.
The bill also creates what it calls a new "federal duty of care" that would legally require lenders to ensure that a mortgage is suitable for the borrower in terms of income and ability to repay.
All refinances would have to pass what the bill calls a "net tangible benefit" test before closing. In other words, homeowners couldn't be refinanced unless the replacement loan is better for them financially than their existing loan.
Critics say forcing small and mid-sized mortgage companies to set aside capital to cover potential losses would put many of them in financial hardship.
Supporters say the 151-page bill would have gone a long way to preventing mortgage lending excesses during the housing boom, especially no-documentation, negative amortization and zero down payment deals, had it been federal law before the boom started in 2002 or 2003.
For more information on real estate and financing feel free to contact bill.swanson@cbshome.com.
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