The Mortgage Bankers Association (MBA) has sent a letter to the chairmen and ranking members of the House Financial Services and Senate Banking Committees calling for legislation that would establish a new federal regulatory framework for mortgage lending.
In the letter, the MBA offered an outline of proposed legislation, titled the Mortgage Improvement and Regulation Act (MIRA), that would establish new uniform national lending standards to replace the current patchwork of state and federal lending laws and establish a new federal regulator to implement and enforce these standards.
‘In order to restore confidence in the housing and mortgage markets, we need to ensure that many of the excesses that led to the current crisis aren't repeated,’ says John A. Courson, the MBA's president and CEO. ‘For this reason, we are calling on Congress to create a new national regulatory framework to regularize the mortgage market and better protect consumers.’
The group's plan is centered on the creation of new lending standards and a new regulator, the Federal Mortgage Regulatory Agency (FMRA). MIRA would establish – and FMRA would be responsible for implementing and updating – the new mortgage lending and servicing standards, as well as regulating independent mortgage bankers and mortgage brokers in partnership with state regulators.
‘Under our proposal, we are calling for one federal regulator to implement the standards and oversee all mortgage bankers and brokers,’ says Courson. ‘That regulator would work with the appropriate federal and state regulatory bodies to effectively enforce these tough new requirements.’
The MBA is calling for the following components to be included in the new lending standard:
- many of the recently promulgated Homeowner's Equity Protection Act regulations, including those requiring a determination of a borrower's ability to repay, documentation of income and assets, limits on prepayment penalties and establishment of escrow accounts for borrowers' tax and insurance payments;
- improvements to the mortgage origination, servicing and appraisal processes – some of which had been included in H.R.3915 (which passed the House of Representatives in 2007);
- new duty of care for mortgage bankers and brokers to assure that consumers get the facts they need to know about the loan options available and the costs of their loan transaction, including compensation to the mortgage broker; and
- a requirement that a borrower affirmatively opt in, in writing, to a nontraditional mortgage product.
‘One standard for all borrowers to learn and understand and one standard for all lenders to follow will offer much better protection to consumers in every state and will help to lower costs," Courson adds. "It will also significantly cut down on the confusing and often contradictory patchwork of state laws and regulations."
As part of MIRA, the U.S. Department of Housing & Urban Development and the Federal Reserve would be required to work together in consultation with the new regulator to develop greatly simplified consumer disclosure forms, including combining Real Estate Settlement Procedures Act and Truth in Lending Act disclosures.
Additionally, MIRA would increase resources for investigating and prosecuting mortgage fraud and establish a national financial literacy and counseling program. As part of that program, MBA suggests there should be pre-purchase counseling required on certain mortgage products, primarily for first-time homebuyers.