Subprime and predatory lending practices were at the heart of the current financial crisis. Schiff strongly supported much-needed reform to prevent these bad loans from being made in the first place when the House considered the Mortgage Reform and Anti-Predatory Lending Act of 2009 (H.R. 1728).
The bill establishes a simple federal standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. For refinancing, the bill will require that all loans provide a net tangible benefit to the consumer rather than merely putting money in the pockets of the lender. The legislation prohibits the financial incentives for subprime loans that encourage lenders to steer borrowers into more costly loans and mandates strong new federal rules to require creditors to retain an economic interest in a material portion (at least 5 percent) of the credit risk of each loan, to make sure creditors have a stake in ensuring their loans will not default.