Mortgage Reform: The Beating Continues

For those who couldn't participate in today's conference call, moderated by Rod Clement of the ABA's Mortgage Lending Committee, that I mentioned in a post last week, here are a few highlights.

Michael Winston gave a quick overview of the Mortgage Reform and Anti-Predatory Lending Act of 2007 and had the following comments:

• Representative Brad Miller, one of the sponsors, is reported to have warned fellow Democrats that "we have to be careful now because since we're in the majority, what we propose might actually become law."
• The law, if it ever becomes law, is likely to be a litigation bonanza. Michael, being a litigator, has mixed emotions about that prospect, I'm sure.
• Yield spread premiums as a form of broker compensation will be "killed."
• If states don't pass licensing laws that meet the standard set by this Act and that cover all mortgage lenders and brokers in the state who are not otherwise subject to regulation, those "unlicensed" lenders and brokers will have a fiduciary duty to the borrowers.
• The Act will eliminate "stated income loans" ("liar loans," Chaz Schumer likes to call them). What do you do with the borrowers who already have one and need to refinance, but can't qualify for a "truth teller loan"?
• Section 202's requirement that the loan provide a "net tangible benefit" to a borrower who is refinancing and that the lender make the determination in "good faith" will have litigators licking their chops and manning the battle stations.
• The assignee liability and due diligence obligations placed on securitzers by Section 204 essentially eliminate the "holder-in-due-course" protection that assignees have traditionally enjoyed. You think there's a credit squeeze now?
• Section 206 provides that upon foreclosure, the "successor in interest" to the borrower takes the property subject to "bona fide" leases entered into by "bona fide" tenants prior to notice of foreclosure. Michael stated that the adverse effect upon real estate loan pricing could be substantial.

Katya Gill briefly discussed a proposed HUD Form 1 and a proposed Good Faith Estimate that attempt to disclose loan terms in more detail, but, in my estimation, aren't likely to make a dent in the thick craniums of many borrowers or elevate their financial awareness one iota. Then again, I could be wrong.

Katya also noted that Senators Obama and Schumer both introduced subprime mortgage bills last April and June, but that not one centimeter of movement has been observed on either piece of legislation since it was introduced. A cynic might assume that those beached whales were floated for no other sake than appearances.

I sure wish Congress would seriously consider my "Sam Kinison" approach to subprime mortgage lending disclosure. If your goal is to stop mortgage lending dead in its tracks, let's at least have a laugh and help a homeless person gain useful employment and exercise his lungs while we're at it.

Michael also discussed bankruptcy legislation (previously discussed here) which would allow "equity stripping" and "loan modifications" by bankruptcy courts in Chapter 13 cases. He indicated that prospects for passage are "not good" (from his lips to God's ear!). The negative impact on the repricing of outstanding securitized loans, as well as on future residential loan pricing, would be substantial.

Why do I have the sneaking suspicion that this is all hat and no cattle?