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| What is the fundamental issue? |
| Abusive lending practices are a serious problem for our nation's communities. While abusive lending is mostly found in subprime loans, not all subprime loans are abusive. Responsible subprime lenders play an important role in helping millions of consumers achieve homeownership. Unfortunately, some lenders have take advantage of vulnerable borrowers by charging extremely high interest rates and loan fees, use aggressive sales tactics to steer consumers into unnecessarily expensive loan products, and advertise very low "teaser rates" that steeply increase after two or three years. Abusive loans lead to higher foreclosures, increased vacancy rates, lower home values, and community deterioration. |
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| NAR Policy: |
| As abuses in the housing market were becoming evident, NAR adopted a set of “Responsible Lending Principles” in May 2005. NAR is a strong advocate of protections for consumers in the mortgage transaction; therefore, REALTORS® support the general principle that all mortgage originators should act in good faith and with fair dealings in a transaction, and treat all parties honestly.
NAR supports federal legislation and regulation that prevent abusive lending while keeping fair and affordable subprime loans available. Consumer education is an important tool for combating abusive lending, and NAR encourages its members to help consumers learn how to avoid abusive lending and has developed educational materials as part of this effort. NAR policy supports adoption of responsible lending principles to assure lenders make loans to borrowers that are fair and affordable. Subprime loans should have a reasonable debt-to-income ratio and an escrow for taxes and insurance. Borrowers should have a reasonable choice of mortgages priced to reflect the borrower's creditworthiness. NAR also urges various actions to prevent foreclosure and minimize its impact and other policy initiatives. |
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| Issue Summary: |
| Congress intends to respond to lending abuses by amending the Truth in Lending Act to amend the rules pplicable to high-cost mortgages and establish standards and additional consumer protections for all loans. On March 26, 2009, House Financial Services Committee member Rep. Brad Miller (D-NC) with co-sponsors, including Chairman Barney Frank (D-MA), H.R. 1728, the “Mortgage Reform and Anti-Predatory Lending Act.” The legislation addresses many abusive lending practices that contributed to today’s foreclosure crisis, including reckless underwriting practices, subprime prepayment penalties, and new remedy and enforcement provisions. Senate Banking Committee Chairman Chris Dodd (D-CT) has also indicated he will support mortgage reform lending legislation, the foundation of which is a new duty for all lenders and brokers to act in good faith and with fair dealings. The banking regulators have issued guidelines for nontraditional and subprime mortgage lending, and the Federal Reserve Board has issued an anti-abusive lending regulationthat will applies to all mortgage lenders. |
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| Proponents of NAR policy will say: |
| There is a need for strong federal policies to address abusive lending in the subprime mortgage market. Responsible mortgage lenders and consumer advocates recognize the urgent need to curb abusive lending practices that harm homebuyers and homeowners. In that regard, federal legislation should promote the elimination of abusive lender practices, such as weak underwriting, while preserving state consumer safeguards. |
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| Opponents of NAR policy will say: |
| The proliferation of anti-abusive lending laws in many states has created a significant regulatory burden for lenders. To facilitate the free flow of capital from state to state, Congress needs to establish a balanced, uniform, national anti-predatory lending law that provides objective compliance standards and preempts state anti-predatory lending consumer protection laws. Some argue that, between tough standards imposed by the federal banking regulators and self-correction by lenders, no federal legislation is needed. |
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| What's needed? |
| NAR will seek adoption of NAR policy at each stage as bills move through the House and the Senate. |
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| Legislative/Regulatory Status/Outlook: |
| On April 29, 2009, H.R. 1728, the “Mortgage Reform and Anti-Predatory Lending Act” was approved by the House Financial Services Committee (HFSC). HFSC Chairman, Barney Frank (MA), expects the legislation to be voted on by the full house during the week of May 3rd, 2009. It is expected that H.R. 1728 will pass the House and be sent to the Senate Banking, Housing and Urban Affairs (SBHUA) committee for consideration. As of April 29th, there is no companion legislation in the Senate; however, SBHUA Committee Chairman, Chris Dodd, has indicated that he supports mortgage reform. At this time, there is no indication of when this issue will be taken up by the SBHUA or the full Senate. |
 | House bill introduced by: |
| Brad Miller (D-NC) |
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| House committee of jurisdiction: |
| Committee on Financial Services |
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| Senate committee of jurisdiction: |
| Banking Housing and Urban Affairs |
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Related information: |
| NAR's page on Subprime Lending |
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