New legislation is coming through the House Financial Services Committee as additional response to the housing crisis and to the increase in foreclosures. The bill targets mortgage brokers and yield spread premiums.
The Mortgage Reform and Anti-Predatory Lending Act of 2007, HR3915, attempts to put into law prohibitions against doing a loan that is not in the borrower's best interest, requirements for minimum loan repayments, restrictions on refinancing that require a tangible net benefit.
It also establishes a distinction between mortgage brokers and depository institutions. Additional licensing requirements are put forward for mortgage brokers and broker compensation from lenders (yield spread premiums) are banned.
This ban on yield spread premiums does not restrict the equivalent investor payment to depository originations which is called service release or gain on sale.
North Carolina has just passed the first state ban on yield spread premiums. I do not have any details on the YSP ban or the other two mortgage related bills signed yesterday in North Carolina. The impact on mortgage lending in that state will be watched.
I remember some years ago when Georgia passed a predatory lending law that almost stopped all mortgage lending in the state, and required emergency corrective legislation.
This new legistation enjoys momentum from the Housing Rescue and Foreclosure Prevention Act and from the general mortgage market problems. Industry professional and consumer groups need to review and consider the provisions to make sure that this bill accomplishes it intentions without bringing on unintended negative results of reduced competition, limited consumer choice, and increased consumer cost.
There is still a lot going on in the regulatory and legislative realms, not the least of which is HUD's insistence on proceeding with loan disclosures that are confusing to consumers. Industry professionals and consumers need to be aware as possible, because these decisions will impact mortgage lending in the future.
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