By Eugene T. Lowe
November 12, 2007

Responding to the mortgage foreclosure crisis, the Financial Services Committee of the U.S. House of Representatives on November 6 approved the Mortgage Reform and Anti-Predatory Lending Act of 2007, H.R. 3915. Approved by a vote of 45-19, Committee Chairman Representative Barney Frank (MA) said that the bill could come to the House floor by November 14.

The bill establishes standards that would prohibit steering borrowers. Moreover, all mortgage originators (individuals, companies and banks) would be subject to a federal duty of care and required to have a license and registration. There would be a minimum standard that a borrower must have a “reasonable ability to pay”. The bill also attaches a limited liability to secondary market securitizers, those who package and sell home mortgage loans. Included in the bill are provisions from H.R. 1182 introduced in the109th Congress that expands the scope of and enhances consumer protections for “high-cost loans” under the Home Ownership and Equity Protection Act (HOEPA). The bill also protects renters of foreclosed homes by giving tenants without leases 90 days before being required to vacate. A preexisting tenant lease before foreclosure would be honored. Finally, the bill establishes an Office of Housing Counseling within the U.S. Department of Housing and Urban Development (HUD). HUD would be required to provide financial and technical assistance to states, local governments, and nonprofit organizations.

In a letter to Chairman Frank before the Committee vote, Conference of Mayors President Trenton Mayor Douglas H. Palmer, and Conference Executive Director Tom Cochran on behalf of the Conference of Mayors said: “While there is much in your bill to commend, we are especially pleased that the legislation will establish a minimum standard for mortgages thereby requiring that borrowers at least have a reasonable ability to repay. Similarly, the bill’s tenant protection clause is a key provision. It is very important that a tenant’s lease isn’t automatically terminated when there is a foreclosure. In your bill, the tenant will have 90 days.” The letter also said: “In the deliberations on your bill, we would like to note that we are opposed to federal law that would preempt state or local law that address abusive mortgages and provide relief to homeowners.”

Similarly, in a letter to Chairman Frank and Ranking Minority Member Representative Spencer Bachus (AL) from the executive directors of the nation’s state and local elected and appointed leaders (the Big 7), support was pledged for the legislation with the caveat: “States and localities have a long history of governing mortgage lending and foreclosure practices because housing is a fundamental element of state, regional, and local economies. As the Committee moves forward with H.R. 3915, we urge you to protect state and local authority and oppose efforts to establish a federal regulatory “ceiling” that would chill the ability of our members to protect consumers, respond fully to challenges, and help advance homeownership opportunities.”

But because of great of pressure from the mortgage industry and in order to garner bipartisan support, the bill was passed with national liability standards which effectively pre-empts state law.