If Congress approves the bill as written and President Barack Obama signs it, the new law would hinder the return of no-documentation mortgages, and some mortgage fees would be limited. Also, a Consumer Financial Protection Bureau would be charged with overseeing consumer lending, and one of its tasks would be to create new home-appraisal standards.
Consumer mortgage protections outlined in the bill are Congress' way of legislating common-sense underwriting and more borrower protection "to an industry that lost sight of it," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition.
Below are a few of the mortgage-related highlights of the bill as it stands.
DOCUMENTATION REQUIRED: It seems like ages ago that consumers could get a no-documentation mortgage, stating their income instead of providing proof of it. In today's mortgage market, much more documentation usually is required.
But this legislation would work to prevent the no-doc loan from returning if and when lending standards loosen up again.
"Banks have to find out how much money a consumer is making, as opposed to taking someone's word for it," said Pedro Morillas, consumer advocate for the California Public Interest Research Group. In the past, some borrowers got loans they probably shouldn't have by overstating their income and assets.
This measure amounts to creating a safeguard for the future. "It doesn't represent a change in today's marketplace," said Keith Gumbinger, vice president of HSH Associates, a publisher of consumer loan information, "but it addresses what could be a future relaxation of standards."
The bill doesn't ban no-documentation mortgages outright, but if lenders choose to make one, they will be subjected to certain risk-retention regulations, otherwise known as "having skin in the game," said John Courson, president of the Mortgage Bankers Association. That requirement also would probably increase consumers' mortgage costs, he said.(2 of 2)
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