Mortgage Training : Summary of H.R. 1728 - Part 1 of 2

Written By: Joan Ewing, Op-Ed Writer

Hello Everybody - What is this Blog title you ask - Well it got your attention, now I will explain. The Blog Title is referring to the Summary of House of Representatives Bill Number 1728, which was introduced on March 26, 2009 by House Financial Services Committee Chairman Barney Frank, Rep. Brad Miller (D-NC) and Rep. Mel Watt - (D-NC). This House Bill, if passed, will change the mortgage industry as we know it today. Because of the length of the bill which is 155 pages in the original form - I will report on the summary of the bill.

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First in the long list of changes is - All mortgage originators (including individuals as well as companies and banks that originate mortgages) will be subject to a federal duty of care that requires, licensing and registration under State or Federal law. All originals must present consumers with appropriate mortgages loans (i.e., loans that a consumer has a reasonable ability to repay and for which he/she receives a net tangible benefit (for refinancing) and that do not have predatory characteristics). The originators will make full disclosures to consumers, certifying to lenders compliance with origination requirements and including a mortgage originator’s unique identifier in loan documents.

Yield Spring premiums and other compensation that could cause mortgage originators to “steer” applicants toward more costly mortgages are banned for all mortgage loans. The total direct and indirect compensation from all sources permitted to the mortgage originator may not vary with the terms of the mortgage loan.

It gets more interesting. A mortgage originator that violates the duty of care will be liable to a consumer for the greater of actual damages or an amount equal to three times broker fees plus costs, including attorney’s fees.

Title II - Minimum Standards for ALL Mortgages - Ability to repay/net tangible benefits. Every residential mortgage loan will be subject to two new Federal standards that apply to creditors, assignees and securitizes.

At the time the mortgage is entered into, the creditor must make a reasonable good faith determination that the consumer has a reasonable ability to repay the loan at a fully indexed fully amortizing rate, based on verified and documented information including the consumer’s credit history, current and expect income debt-to-income ratios.

For refinancing - the will loan must provide a net tangible benefit to the consumer, based on information known or obtained in good faith by the credit. The Federal banking agencies shall prescribe relations that define “net tangible benefit” and loans for which the cost of refinancing exceeds the newly principal specifically do not provide a net tangible benefit.

Qualified Mortgage - Safe Harbor is a mortgage that provides prime, fully documented 30 year fixed-rate mortgage that have no negative am or interest-only features are presume to the meet the ability to repay and net tangible benefits standards. However, this presume is rebuttable. Qualified mortgages are defined as such - the APR does not exceed an average prime offer rate (i.e. 1.5 percentage points for a first lien and 3.5 percentage points for a subordinator lien); the income and financial resources have been verified; the underwriting process is based on a fully indexed rate; the loan meetings a combined debt-to-income test prescribed by the Federal banking agencies and the loan has a fixed rate of not less than or more than 30 years.

If this Bill passes as presented the consumer will have other remedies against the creditor under the Truth in Lending Act. If the creditor violates the ability to repay or net tangible benefit standards they will be liable to the consumer for recession plus the consumer’s costs for the recession unless the creditor provides a cure within 90 days after receiving notice from the consumer.

What is the cure? A no-cost modification or refinancing of the loan to provide terms that would have satisfied the minimum standards if the loan had contained terms as of the original date, as well as the payment of costs the consumer incurred as a result of the violation.

Is this enough information for this week? I think so. Every time I read this Bill, my head starts to swim. So I will save some for next week - however, it is a start and it will be very interesting to see if this Bill passes as introduced.

Need Mortgage Training? CLICK HERE:

So until next week - keep processing. More Later.

About The Author

Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base. 


Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.