Dec. 14, 2007 – The Federal Reserve Board should bar prepayment penalties for subprime loans and limit the size and duration of any remaining prepayment penalties, 19 Democratic House Financial Services Committee members said in a letter yesterday to Fed Chairman Ben Bernanke.
The group, which includes committee Chairman Barney Frank, Mass., wrote the letter to Bernanke as the Fed continues to weigh forthcoming proposed rules which will revise the Home Ownership and Equity Protection Act, enacted in 1994.
Over the last year, the committee has held a number of hearings on issues related to the subprime crisis and passed several pieces of legislation aimed at minimizing its impact. In their letter, committee members said these hearings have helped them identify “a number of lending products and practices you should address.” Besides limits on prepayment penalties, these include:
- requiring prudent underwriting of the borrower’s ability to pay a mortgage for the entire term (verification of income or assets necessary to repay the loan including taxes, insurance and fees should be required);
- eliminating “perverse incentives” which lead consumers to more expensive loans; and
- improving disclosures so that consumers can fully understand loan terms and better compare costs and terms among different lenders.
“We are encouraged that the board is taking these initial steps toward reforms that we hope will be meaningful and lasting improvements to mortgage lending,” the letter said.
In addition to Frank, the letter was signed by Reps. Brad Miller (N.c.), Paul Kanjorski (Pa.), Maxine Waters (Calif.), Carolyn Maloney (N.Y.), Luis Gutierrez (Ill.), Melvin Watt (N.C.), Michael Capuano (Mass.), William Lacy Clay (Mo.), Carolyn McCarthy, (N.Y.), Joe Baca (Calif.), Al Green (Texas), Emanuel Cleaver (Mo.), Gwen Moore (Wis.), Albio Sires (N.J.), Paul Hodes (N.H.), Keith Ellison (Mont.), Ed Perlmutter (Colo.) and Christopher Murphy (Conn.).