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House mortgage bill offers no relief

The Rocky

Published November 17, 2007 at 12:05 a.m.

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If anything like HR 3915 eventually becomes law, mortgage lenders will have to add to their expertise a new set of skills: fortune telling.

The mortgage reform bill is meant to clean up the messes caused by the subprime lending collapse. It passed the House by a thumping 291-127 margin on Thursday, and it would require financial institutions to satisfy regulators that a homebuyer "has a reasonable ability to repay" before lending.

Meaning: If a homeowner gets laid off or has an unforeseen medical emergency or otherwise can't keep up with his payments, he could say his loan was too expensive. The homeowner could then sue the lender, recover all the principal and interest he's paid, and collect damages.

The bill would also have Washington regulators rather than lenders (who have their own assets at risk) set minimum standards for home loans. And it would set up a federal licensing regime for mortgage brokers.

The upshot: Trial lawyers will be wealthier. But money available for mortgages will dry up, the credit crunch will worsen, and the dream of home ownership will be snuffed out for potentially millions of Americans with modest incomes.

We can't believe that, in their zeal to crack down on allegedly questionable lending practices, federal lawmakers truly intend to stifle opportunities for the middle class to purchase homes. That's why we're encouraged to hear that many in the Senate consider this approach an overreaction - and that President Bush has suggested he'd veto such a measure if it reached his desk.

Backers of the bill have spun sinister tales of "predatory" lenders and a mortgage industry besotted with greed.

Investors in the marketplace literally aren't buying that line. The recent meltdown at several financial giants - led by Merrill Lynch and Citigroup - suggests that the market for subprime and other riskier-than-normal home loans will surely contract long before Congress could get involved.

Problem is, HR 3915 would provide no relief - zero - to anyone who now has a subprime or any other adjustable rate mortgage that will soon reset to a higher interest rate. It's more likely to cause them even more pain, because the bill's new regulations would apply to refinanced mortgages, and the market for those is likely to shrink, too.

So those homeowners may be stuck with mortgages they really can't afford, and have few alternatives that would keep their monthly payments in check.

It's not clear who would benefit from this bill, other than bureaucracies, which will need to staff up as they tighten scrutiny of mortgage lenders, and the plaintiff's bar, which will land lucrative paydays in court.

As John Berlau of the free-market Competitive Enterprise Institute recently wrote in National Review, "Banks have incentives to loan to borrowers who are reasonably likely to repay, because banks do not want to foreclose."

It's remarkable that such simple logic has eluded so many federal lawmakers and other self-styled champions of the middle class. Since it has, however, we have to trust that the Senate or the White House will prevent HR 3915 from becoming the law of the land.

Comments

  • November 17, 2007

    8:21 a.m.

    Suggest removal

    CL writes:

    "Meaning: If a homeowner gets laid off or has an unforeseen medical emergency or otherwise can't keep up with his payments, he could say his loan was too expensive. The homeowner could then sue the lender, recover all the principal and interest he's paid, and collect damages."

    I don't see how th RMN came to this conclusion. The bill says:

    "Sec. 129B. Minimum standards for residential mortgage loans
    `(a) Ability To Repay-

    `(1) IN GENERAL- In accordance with regulations prescribed jointly by the Federal banking agencies, in consultation with the Commission, no creditor may make a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that, at the time the loan is consummated, the consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance, and assessments."

    Since getting laid off or having an unforseen medical emergency would occur after the loan is consummated, how does the RMN come to this conclusion??

  • November 17, 2007

    9:16 p.m.

    Suggest removal

    yaakovwatkins writes:

    Is there any evidence that lending companies have not followed this standard already?

  • November 19, 2007

    5:38 p.m.

    Suggest removal

    GimpletheFool writes:

    This editorial is either the dumbest or most dishonest thing I have seen in years.

    I have seen the work of third graders that showed a better understanding of the world and constructed a more reasonable and logical argument.

    This is truly pitiful. Do the people who advertise in your paper know you think so little of your readers as to conceive and publish such drivel?

  • November 19, 2007

    5:59 p.m.

    Suggest removal

    GimpletheFool writes:

    My apologies, Carl Campanile's column in today's NY Post is at least as dishonest as what you've written.