Mortgage Reform and Anti-Predatory Lending Act of 2007

MORTGAGE REFORM AND ANTI-PREDATORY LENDING ACT OF 2007 -- (House of Representatives - November 15, 2007)

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Mr. ROYCE. I thank the gentleman.

I do rise in opposition to this bill and to explain a line of reasoning that the Wall Street Journal and other critics have pointed out on their editorial pages. This proposal, in fact, is a trial lawyer's dream. What this bill does is it, with very murky language, forbids banks for signing up borrowers for what is termed ``overly expensive loans.'' It requires banks to make sure that the consumer has a ``reasonable ability to repay the loan'' and insist that loans must be ``solely in the best interest of the consumer.'' This kind of murky language would invite litigation from every borrower who misses a payment. The Wall Street Journal says that if this bill becomes law, we can expect to read billboards reading, ``Behind on your mortgage? For relief, call 1-800 Sue-Your-Banker.''

For the first time, under this act, banks that securitize mortgages would be made explicitly liable for violations of lending laws. This is a version of secondary liability that holds the bundlers and resellers of mortgages responsible for any mistakes of the original lenders. Now, the reselling of mortgages has been both a boon to the housing liquidity and risk diversification and, therefore, to lower interest rates for all of us that have taken out a loan. So to the extent that the bill adds a new risk element to securitizing subprime loans, and it surely will, the main loser will be the subprime borrower who will pay higher rates if he or she can get a loan at all.

Now, this debate is occurring during a challenging period for our mortgage market. What has transpired over the last few months has spread throughout our capital markets. It has the potential to slow the economy even further if we do this wrong. This bill is the wrong approach.

Now, we have had some signs of self-correction in the mortgage market. Lenders are underwriting mortgages

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much more carefully as a result of market discipline. Products which have proven to be unfit for certain borrowers such low-doc loans, short-term hybrid ARMS, interest-only products, those are becoming increasingly hard to find. Those have been pushed out of the market. But the legislation before us today ignores such advances. Not only does this bill fail to account for the progress made in the market, it has the potential to seriously restrict access to credit for millions of Americans looking to purchase a home or refinance their mortgage.

In its present form, a borrower will have the ability to recover all of the principal and interest paid over the entire history of the loan as long as he can convince a court that he didn't have a reasonable ability to pay, as I said. At the time the loan was originated, again, it is not hard to imagine how language such as this is going to be abused and run up the costs of home mortgages for everyone.

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