Flurry of Housing, Mortgage Legislative Action in Wake of Subprime Concerns
WASHINGTON -- Legislative efforts to provide affordable housing, mortgage debt relief, save homes, and prevent foreclosures are stacking up as lawmakers scramble to stem the tide of foreclosures.
The House was scheduled to vote on the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648) last Thursday, which would exclude discharges of indebtedness on principal residences from gross income for federal tax purposes. The bill was introduced by House Ways & Means Committee Chairman Charlie Rangel (D-N.Y.) and is similar to President George W. Bush's previously proposed process to help curb the impact of the subprime crisis and general mortgage market slowdown on homeowners and those facing foreclosure.
The bill passed out of committee on a voice vote.
Additionally, a House Judiciary subcommittee held a hearing recently on changing the bankruptcy code as it pertains to mortgages. The Emergency Home Ownership and Mortgage Equity Protection Act of 2007 (H.R. 3609), received praise from the National Consumer Law Center and credit unions' own Center for Community Self-Help. However, the two national credit union trade associations lobbied hard for a decade to pass the recent bankruptcy reforms and are keeping a wary eye on re-opening that can of worms.
Financial Services Roundtable President/CEO Steve Bartlett, a former congressman whose organization represents many of the largest banks in the country, testified at the hearing, "H.R. 3609 would authorize bankruptcy judges to unilaterally reduce the loan amount of any mortgage and convert part of the mortgage to an unsecured status. It is important to note that this applies to all mortgages, even prime, fixed-rate loans that are fully current. This will force mortgage lenders to charge much higher interest rates [like those of unsecured credit cards] for all types of mortgage loans. This will dry up credit for any American who cannot afford these higher rates."
A letter from a coalition of banking trade groups expressed similar objections.
Also housing related, the House has passed the Flood Insurance Reform and Modernization Act of 2007 (H.R. 3121) by a vote of 263 to 146. Senate Banking also held a hearing on the legislation last week. It would make the National Flood Insurance program more actuarially sound by phasing out subsidies for commercial properties, vacation homes and second homes built before 1974; improve flood mapping; and allow for additional optional business interruption coverage.
The House has also passed the Expanding American Homeownership Act of 2007 (H.R. 1852), which would modernize the Federal Housing Administration for affordable fixed rate mortgages focusing on first-time buyers. The bill would authorize FHA to serve more subprime borrowers at affordable rates and terms, recapture borrowers that have turned to predatory loans in recent years, and offer refinancing loan opportunities to borrowers struggling to meet their mortgage payments in the midst of the current turbulent mortgage markets.
Senate Banking Committee Chairman and presidential candidate Christopher Dodd (D-Conn.) has vowed to introduce legislation to reform subprime lending practices, strengthen borrower protections, and restore confidence in the markets. "Let me be clear: affordable home loans are a good thing; predatory lending is not. Predatory lending needs to be stopped, which is why I intend to introduce legislation that will put an end to the practices that have forced thousands of Americans into foreclosure and put thousands more in danger of losing their homes," Dodd said.
The bill he plans to introduce would prohibit prepayment penalties and steering to higher priced loans. Leadership Conference on Civil Rights, Center for Responsible Lending, and AARP, among others, are supporting this effort.