Yesterday the U.S. House of Representatives passed a controversial bill that is meant to take aim at predatory lending. Predatory lending is among the “shoddy” lending practices that led to the summer’s subprime lending crash and subsequent credit market crisis. The idea is to fix the mortgage lending industry so that it is harder for predatory lenders to take advantage of borrowers.
Some of the main points of the bill restrict prepayment penalties and limit incentives for loan originators. And Inman News reports on one of the more controversial aspects of the predatory lending bill:
HR 3915 would create limited “assignee
liability” for companies that securitize loans, but prohibit
class-action lawsuits by borrowers. The bill would also preempt states
from passing laws that would give borrowers additional rights to sue
loan securitizers and other assignees.
Consumer groups are not particularly happy with the predatory lending bill, though. According to ConsumerAffairs.com, the predatory lending bill hurts more than it helps:
“This bill represents a net loss to consumers because it replaces
strong state protections with a weak, untested federal scheme,” said
Alys Cohen, staff attorney with the National Consumer Law Center. “We
appreciate the authors’ efforts to combat predatory lending, but
compromises made to attract wider support make the bill an empty
If you are on the cusp of qualification for a loan, this legislation may make it more difficult to get a home mortgage, since lenders may not want to take the risk. Additionally, some borrowers may find that they don’t get the terms the expected because incentives to originators are so limited. Additionally, the hoops a homeowner has to jump through when predatory lending does become apparent are more onerous with the new bill than the consumer protections offered by states.
A Senate version of the predatory lending bill is being hammered out right now, and many in the mortgage industry and related financial industries eagerly await the outcome.