Senators should oppose efforts to undermine refinance bill
Chicago, IL – November 12, 2012 – (RealEstateRama) — A mortgage industry-backed legislative push to weaken an effort to encourage lenders to make safe and sustainable loans is likely to kick off in the weeks following the election.
In the lame duck session, Sen. Bob Corker (R-TN) is expected to introduce an amendment to a bill that was originally intended to expand access to safe refinance lending for millions of families. This amendment would provide a “safe harbor” to mortgage lenders from litigation claiming that loans are improperly originated, significantly limiting legal recourse for borrowers with poorly underwritten loans.
“The Corker amendment would turn a bill that helps homeowners and boosts the economy into one that gives unprecedented legal protections to lenders who make high-cost loans,” says Dory Rand, President of Woodstock Institute. “Industry-backed legislation should not hamstring the regulatory agencies working to craft appropriate protections for consumers.”
The Corker amendment would impact mortgages that meet the definition of a Qualified Mortgage (QM). The QM designation was introduced by the Dodd-Frank Act as a way to provide an incentive to lenders to make loans that borrowers can afford and that lack risky features that spurred the housing crisis, such as balloon payments and exorbitant fees.
Qualified mortgages may include subprime loans with higher interest rates than prime loans. The high cost raises significant concerns about granting broad legal protections to subprime loans, given the history of predatory lending practices in the subprime market and the fact that subprime loans are typically taken out by lower-income borrowers and borrowers with damaged credit. Lenders should not be granted unnecessary, overly broad legal protections on these riskier, high-cost loans.
The Consumer Financial Protection Bureau is in the process of writing rules to define the terms of a Qualified Mortgage. The agency is carefully considering all viewpoints and is working diligently to release the rules in January. The CFPB should be allowed to do its job and design the strongest protections for the riskiest loans, not be constrained by legislation that would give lenders a “get-out-of-jail-free” card for high-cost mortgages.