Standard lending rules No. 1 priority of lawmaker
For the American mortgage market, it could be the hottest buzzword of the year: suitability. That’s because Congress has a new top legislator for mortgage matters, U.S. Rep. Barney Frank, who believes that “you shouldn’t lend more than [homebuyers or refinancers] can afford to pay back, and you don’t lend them more than their house is worth.” Frank, a 14-term Massachusetts Democrat, is the new chairman of the House Financial Services Committee, the primary originator of banking and mortgage-related federal legislation.
In an interview, he made it clear that a top priority this year will be enactment of a nationwide lending-standards law designed to protect consumers from deceptive, unfair and predatory mortgage practices.
With foreclosures rising and many credit-stressed homeowners facing imminent rate increases on controversial “payment-option” and other adjustable-rate loans, pressure is building on Capitol Hill for tougher rules for mortgage brokers and lenders.
A recent study by the Center for Responsible Lending predicted that as many as one of every five subprime borrowers who took out reduced-payment, low-documentation mortgages between 1998 and mid-2006 could ultimately lose their homes because of steep payment increases and penalties they can’t handle.
