Loan Modification Laws Clearly Explained – HR, 1728 – The Mortgage Reform
On May 7, 2009, this bill was discussed and passed in the House. After this bill was passed in the House of Representatives, it was combined with HR. 4173 and introduced into the House again. It is still required to pass the Senate vote before it is law. HR 1728 was developed due to the questionable mortgage practices and investing strategies that were initiated during the housing boom. This bill was established in response to the sub-prime mortgage crisis perpetrated during this time. Reform was required to prevent these objectionable loans from being made.
Lenders are expected to ensure the capacity of the client to pay back the loan
H.R. 1728 involves an uncomplicated federal standard for all housing loans: mortgage companies must ensure provisions be established requiring the customers to be capable of repaying the loans the customers have accepted. The lender would have to guarantee that a borrower has a “reasonable ability to repay.” This information is based on income, credit history, indebtedness and other factors. As a result, this bill will demand that all loans being refinanced provide a net tangible benefit to the consumer, prohibiting “junk” lending. This lending is driven by fees instead genuine economics. During the real estate boom, institutions had deviated from the more reasonable and honest practices of the past and initiated the tendency to foster risky, exotic mortgages and exercising procedures such as “no documentation” loans.
Excludes unfair lending procedures
The bill forbids the financial enticements for sub-prime loans that persuade lenders to maneuver borrowers into more expensive loans, including the bonuses referred to as “yield spread premiums.” As a result, loan officers compensate brokers and cause the price of loans to escalate. Many of the homeowners in the existing mortgage catastrophe were directed into more expensive loans when in reality they were not financially qualified. This bill restricts the prepayment penalties charged to borrowers who wish to terminate their loans and refinance for more affordable contracts.
Bring responsibility to the secondary market for home loans
According to this bill, for the first time, contributors in the enormous secondary mortgage market would be accountable and designated to federal law for ensuring responsible lending. This law allows clients to achieve redress directly from companies implicated in “examining” mortgages, except if the “examiner” supplied the borrower with a loan that meets the basic ability to repay and net tangible benefit standards. In previous years, mortgage loans escalated and were “sliced and diced” by organizations that “bundle and resell” home loans to investors. This process made it difficult to discover the company who was ultimately accountable for establishing the integrity of the loans.
Require creditors to be accountable for the mortgages they established
In order to more completely promote underwriting accountability, the bill authorizes compelling original federal regulations that necessitate creditors to preserve the economic awareness in the material segment (at least 5 percent) of the credit risk of each loan that the creditor transfers, sells, or communicates to a third party. The Federal Banking bureau would have the discretion to make an exemption to HR 1728′s risk retention provisions, including form and amount.
Require penalties for frivolous mortgages
Due to the frivolous loans that were initiated during the housing boom, H.R. 1728 will require the lenders and the secondary mortgage market investors, who did not adhere to these regulations (like the ability to pay and requiring net tangible benefits) to be deemed responsible by consumers for rescission of the loans and the client’s expenses for rescission, including lawyer’s fees. The consumer would also have the alternative to have a loan amended to correspond with the bill’s standards within 90 days of receiving notice from the consumer.
Increase consumer protections for high-cost mortgages
This regulation improves the safeguards attainable under federal laws on high-cost loans. This law reduces the interest rate and the points and fee triggers that are standard procedures in high cost loans. The law continues to foster consumer protections for “high cost Loans” by:
. Forbidding methods that augments the risk of foreclosure, such as balloon payments, leading a borrower to default, and forcing one to make provisions
. Forbidding extreme fees for payoff information, modifications, or late payments
. Forbidding the financing of points and fees, and demanding more pro-loan explanations
Require supplementary discovery for consumers concerning mortgage loans
This law asserts, the lien holder is obliged to divulge the maximum a client is required pay on a variable rate mortgage, with the advice that expenditures will differ based on interest rate adjustments. Lenders are also required to apprise the consumer of the complete quantity of the allotment of the settlement charges, the entire amount of expenses combined in the mortgage loan, the sum the client must pay at closing, and the commission paid to a mortgage lender. Numerous home owners did not understand the stipulations of their mortgage, particularly when acquiring sub-prime loans. This law will necessitate exposure about the loan that will disclose any relevant information related to the loan. These disclosures will assist the client in gaining the necessary data to make informed and educated decisions.
Protection for renters who’s rented homes run into foreclosure problems
A tenant that is renting a home can also be impacted by a foreclosure. The HR1728 bill will require the tenant to have proper and timely notification before the individuals are forced out of their homes. If the home is the renter’s primary residence, they will have to be notified ninety days before the date of foreclosure. This will allow the individual time to find a new residence and relocate.
The Office of Housing Counseling was created to assist the client
This law institutes an office agency called the Office of Housing Counsel associated with HUD to encourage home-ownership and rental housing counseling. This organization will direct and synchronize other endeavors to expand the access of home-ownership counseling. This office will launch a multimedia promotion such as national public service campaign to educate clients concerning financial counseling and home-ownership and the creation of a website and toll-free hot-line.
Impart legal assistance to homeowners and tenants confronting foreclosure
According to this law, home buyers will be allowed HUD measures to implement competitive grants for numerous varieties of legal assistance for low income and moderate income homeowners and tenants dealing with foreclosure associated with home ownership protection, home foreclosure deterrence, and tenancy. Preference will be awarded consideration of the top 100 areas for home foreclosures. Beneficiaries will be forbidden from utilizing any monies for any class action lawsuits.
Fuel Economy Dispute Looms Auto Industry
Automakers face their biggest challenge in 16 years as the Senate taps efficiency rules. As the dispute between automakers and lawmakers continues, the industry becomes increasingly gloomy. Vagueness and rage loom like dark clouds trying to blur the entire system.
The dispute…
The drive to hike fuel efficiency standards obtained a dramatic step forward likened to the performance of EBC Redstuff last Tuesday when a Senate committee approved a 40 percent raise over the next decade. Democrats vowed to hold a full Senate vote sometime next month on the bill. The latter mandates all auto manufacturers to increase the average fuel economy of their vehicle fleets to 35 miles per gallon by 2020 and this is a move that the automakers denounced as unrealistic.
The bill was unanimously approved by the Senate Commerce Committee, making it the first fuel economy bill to pass that hurdle since 1991. The move prepares the stage for a major dispute over new rules that could cost automakers tens of billions of dollars.
In the past six months, automakers have seen the ground shift beneath them on fuel economy because of fluctuating gas prices, the war in Iraq, calls for energy independence, and increasing concerns about climate change. These factors dragged away supporters who have long helped Detroit automakers fight for tougher standards.
Dave McCurdy, the head of the Alliance of Automobile Manufacturers, a trade group that represents the General Motors Corp., Ford Motor Co., DaimlerChrysler AG, the Toyota Motor Corp. and other automakers, called the bill unrealistic and unattainable. “They really are more interested in political statements and posturing at this stage of the game,” said McCurdy, a former congressman. “I don’t see serious legislating going on. This is not the end game. This is the first inning and there’s a lot left to be played.”
How serious is it?
To gauge how serious the fuel economy dispute has become, the credit ratings service Standard & Poor’s said that automakers face a long term threat to their balance sheets as the European Union, Japan and the United States consider proposals to reduce emissions and boost fuel efficiency. In a report, S&P said regulations “pose a real risk to global automakers financial performance, particularly as some are already under pressure from razor-thin margins.”
Senators from rural states like Alaska, Idaho and North Dakota have upturned course in recent months and signed on to mandatory fuel economy raise, notwithstanding the fact that Detroit automakers say those requirements could threaten their ability to produce large vehicles, including pickups popular in rural states.
All at once, Detroit automakers’ political clout has declined as they focus on their restructure plans that involve plant closures, job cuts, while the United Auto Workers’ (UAW) sway among Democrats softens with its waning ranks.
The best hope of both foreign and domestic auto manufacturers may be in unity. This is the advice delivered in private by Rep. John Dingell, D-Dearborn, the powerful chairman of the House Energy and Commerce Committee. Dingell is sure to come under more pressure to act on fuel economy, albeit his intention to propose a broader bill that would require other industries to do their part to limit the emission of greenhouse gasses.
House Speaker Nancy Pelosi said last Tuesday that the lower chamber would vote on a fuel economy proposal before the end of the year. A number of senators have laid the blame for Detroit’s troubles on the companies’ successful lobbying efforts to obstruct fuel efficiency raise.
Reducing greenhouse gas emissions
Meanwhile, automakers are struggling to bolster their environmental credentials. GM said Tuesday that it had become the first automaker to join the U.S. Climate Action Partnership – a coalition of businesses and environmental groups calling for more action to reduce greenhouse gas emissions. Ford and DaimlerChrysler said that they may also join.
Automobiles account for 20 percent of U.S. greenhouse gas emissions, which have been linked to global warming. Improving fuel economy is considered one of the best ways to reduce emissions. Automakers warn it will be very expensive, however, if not impossible, to meet the proposed fuel economy mandates. They say it could add as much as $6,000 to the cost of every vehicle and force them to abandon some market segments, especially big vehicles, the most profitable for Detroit.
Environmentalists and lawmakers reject that argument. Joan Claybrook, the head of Public Citizen, which supports higher fuel economy standards, mocked the approved bill for not requiring “any real or significant improvement in fuel economy. It is also much lower than what manufacturers could easily achieve with the wide variety of technologies available to them.”
On improving the bill…
The committee also reinstated the fuel economy credit automakers get for manufacturing flexible fuel vehicles that run on E85 or other alternative fuels. “We’re trying to make the bill better,” said Mike Stanton, the chief lobbyist for the Association of International Automobile Manufacturers. If Congress wants to set an arbitrary number, it should set an “off ramp” that lets regulators waive increases if they prove infeasible, he said.
U.S. Sen. Carl Levin, D-Detroit, has been aggressively lobbying his colleagues, but expressed dissatisfaction with the final bill. “It’s got major problems,” Levin said. The committee had made some improvements,” which represent a few little steps in the right direction, but there’s a long road.”
The United Auto Workers and the trade group that represents Detroit automakers sent strongly worded letters to a key Senate committee on Monday urging members to reject a bill that would considerably increase fuel economy standards. Alan Reuther, the UAW’s legislative director, told committee Chairman Sen. Daniel Inouye, D-Hawaii, that the compromise bill drafted by the committee’s leadership “is much more extreme” than a measure initially proposed by Sen. Dianne Feinstein, D-Calif.
Reuther warned that the compromise bill could force automakers to close plants and slash tens of thousands of jobs, primarily those of union members. “The new proposal that will be considered by the committee contains absolutely no mechanisms to prevent this unacceptable economic and human toll by helping struggling auto manufacturers,” Reuther wrote.
In its letter, the Alliance of Automobile Manufacturers, which represents the General Motors Corp., Ford Motor Co., DaimlerChrysler AG and the Toyota Motor Corp., also called the bill “extreme” and said it could force manufacturers to offer vehicles that don’t match what consumers want in terms of performance, features and costs. “If higher standards make vehicles less attractive to consumers, vehicle sales will drop, negatively impacting auto dealers, suppliers, automakers, and the U.S. economy,” the alliance wrote.
California State Senate Bill 94 – Protecting Homeowners Or Protecting Lenders?
The California State Senate has passed Senate Bill 94 (“SB 94?), legislation proposed by Sen. Ron S. Calderon (D-Montebello), Chairman of the Banking, Finance Insurance Committee. The senate passed the bill on May 21, 2009, by a vote of 21 to 14. It is now in the state assembly where it has been read once and “held at desk,” which means that it’s awaiting referral to a committee.
Senate Bill 94 is intended to protect California homeowners from scam loan modification companies.
In my view, the problems with SB 94, as written include:
1. It was created to protect consumers from loan modification “scammers” who charge distressed homeowners up front fees and deliver nothing in return, but it was written without the benefit of accurate data on the contribution being made by the legitimate loan modification industry in California. Without knowing how many homeowners the private sector loan modification firms save each month, or the sustainability of the modifications obtained by the private sector, it would not be possible to design a solution in the best interests of homeowners and the state’s economy.
2. The SB 94 bill, as written, is based on a fundamental misconception. As stated in the in bill’s narrative:
“It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge.
While both of these statements are technically true, this language ignores the fact that there are also reputable private sector firms that homeowners may choose to hire to help them negotiate with their banks when seeking a modification of their mortgages. Private sector firms, including those licensed by the state’s Department of Real Estate and/or law firms offering that such services, have helped tens of thousands of California homeowners get their mortgages modified. With the number of foreclosures continuing to increase each month, it would seem clear that the state’s homeowners would not benefit from any legitimate avenue being overlooked or unfairly maligned.
3. Defrauding a homeowner has always been against California law, so in that sense, SB 94 is redundant. When you consider that “scammers” who did in fact defraud consumers in conjunction with the promise of a loan modification, did so in violation of existing law, it would seem that a new law making it illegal to charge an advance fee when offering to assist a homeowner with a loan modification would be unlikely to prevent future scammers from attempting to do the same.
4. Legitimate firms offering to assist troubled homeowners could be regulated and monitored, without requiring these firms to operate at a financial disadvantage by disallowing advance fees. The process of obtaining a loan modification is not similar to other real estate transactions in several key ways:
A. The process can take six weeks, or six months… and in some cases even longer. The lenders and servicers are not consistent in how loan modifications are handled or on what basis they are granted.
B. There is no escrow, or objective standard for “satisfaction,” in conjunction with a loan modification transaction, and therefore there is no assurance that a company would receive payment from the homeowner once the mortgage has been modified.
These are just a few of the issues with SB 94. The law is attempting to protect homeowners, but is actually protecting the lender guaranteeing that homeowners> will not be adequately represented when dealing with the lender. The lenders will take advantage of this and will offer homeowners loan modifications that do not help their situation.