House Financial Services Committee Mark-up of Predatory Lending Bill

Here's the Committee's press release:

Rep. Brad Miller (D-NC), along with Rep. Mel Watt (D-NC) and House Financial Services Committee Chairman Barney Frank, today introduced H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, aimed at curbing predatory lending, which has been a major factor in the highest home foreclosure rate in the nation in 25 years.  The measure introduced today was also co-sponsored by Reps. Kanjorski, Gutierrez, Bean and Minnick.

The bill is a tougher version of a measure that Rep. Miller sponsored in the previous Congress that would have overhauled mortgage regulations in an effort to prevent another subprime mortgage meltdown. Rep. Miller’s previous bill passed the House in 2007 with bipartisan support, but was never considered in the Senate. H.R. 1728 will be “marked-up” in the House Financial Services Committee on Tuesday, March 31, 2009, beginning at 10:00 a.m.  

“The political climate has changed,” said Rep. Miller. “The foreclosure crisis has wreaked havoc on middle-class families and our economy as a whole. The industry’s arguments for watering the bill down are not at all convincing.”

<>Specifically, the new measure will strengthen restrictions on compensation paid to mortgage loan originators and brokers that is based on a loan’s interest rate and terms, often called yield-spread premiums. Lenders sometimes pay brokers an extra fee for making loans at a higher interest rate than the borrower otherwise could have received. The Congressman says those payment arrangement are an indefensible conflict of interest.

The 2009 measure also includes stronger language on so-called assignee liability. That language would make mortgage securitizers, who package home loans into securities, more liable for fraudulent loans. P>

A key element of the legislation prohibits lenders from underwriting loans that consumers do not have a reasonable ability to repay and prohibits practices that increase the risk of foreclosure for consumers. The bill also encourages the market to move toward making 30-year fixed-rate, fully documented loans, the norm again in mortgage lending. The growth of exotic, non-traditional mortgages was a major factor in the current housing and foreclosure crisis.

<>This bill represents an important step toward preventing the predatory and questionable practices that took hold in the mortgage lending industry in the past several years and undoubtedly contributed to our current housing crisis,” said Rep. Watt.  “Mortgage lending reform is a vital piece of the Congressional effort to prevent a future financial services disaster of this scale.” 

The legislation also protects consumers from being steered into loans that aren’t in their best interest, and if they refinance there must be a tangible net benefit to the consumer.

According to the Center for Responsible Lending, 2.4 million Americans risk foreclosure in 2009. That number could rise to 8.1 million over the next 4 years. The foreclosure epidemic is being caused primarily by families borrowing against their homes to pay their bills when something has gone wrong, not because they are buying more house than they can afford. Families are borrowing against their homes because of job loss, serious illness, divorce and major home repairs. Approximately 72 percent of subprime mortgages from 1998 to 2006 are refinances, not loans to purchase homes.

The bill will also create greater transparency by ensuring lenders make full disclosure of the terms of the loan at the time of signing.

"Americans who lose their home to foreclosure fall out of the middle class and into poverty, probably forever,” said Rep. Miller. “And, middle-class homeowners are seeing their life’s savings disappear with the collapse of home values.”

The Miller-Watt-Frank bill is modeled after North Carolina’s predatory lending statute, which is considered the model state statute for preventing abusive lending practices, while preserving consumer access to credit.

The Committee's summary of the bill appears after the jump.

Summary of H.R. 1728

 

Title I (Residential Mortgage Loan Origination Standards)

·                    Federal Duty of Care:  All mortgage originators (including individuals as well as companies and banks that originate mortgages) will be subject to a federal duty of care that requires (1) licensing and registration, as applicable, under State or Federal law (including under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008), (2) presenting consumers with appropriate mortgage loans (i.e., loans that a consumer has a reasonable ability to repay and for which (s)he receives a net tangible benefit (for refinancings), and that do not have predatory characteristics), (3) making full disclosures to consumers, (4) certifying to lenders compliance with mortgage origination requirements, and (5) including a mortgage originator’s unique identifier in loan documents.

·                    Steering Incentives/Yield Spread Premiums:  Yield spread premiums and other compensation that could cause mortgage originators (i.e., mortgage brokers and bank loan officers) to “steer” applicants toward more costly mortgages are banned for all mortgage loans – the total direct and indirect compensation from all sources permitted to the mortgage originator may not vary with the terms of the mortgage loan (except for size of the loan and number of loans). 

·                    Liability:  A mortgage originator that violates the duty of care will be liable to a consumer for the greater of actual damages or an amount equal to three times broker fees plus costs (including attorney’s fees).

·                    Regulations:  The Federal banking agencies are assigned rule writing authority to implement aspects of this title. 

Ø                              Discretionary Authority for All Mortgages.  The Federal banking agencies are authorized to address troublesome and abusive mortgage terms and practices that may arise in future through issuing joint regulations that address abusive, deceptive or unreasonable mortgage practices, and any other regulations necessary or proper to effectuate the purposes of Title I or to prevent evasion or circumvention thereof.

Ø                              Duty of Care Regulations.  The Federal banking agencies, in consultation with the Treasury Secretary and the Chairman of the State Liaison Committee to the FFIEC shall jointly prescribe regulations that further define the duty of care. 

Ø                              Anti-Steering Regulations.  The Federal banking agencies, in consultation with the Treasury Secretary and the FTC, shall prescribe regulations that prohibit mortgage originators from (1) steering any consumer to a loan that the consumer lacks a reasonable ability to repay, does not provide a net tangible benefit in the case of a refinancing, or has predatory characteristics, (2) steering any consumer from a prime loan to a subprime loan, and (3) engaging in abusive or unfair lending practices that promote disparities among consumers of equal credit worthiness but different race, ethnicity, gender, or age.

Title II (Minimum Standards for All Mortgages)

·                    Ability to Repay/Net Tangible Benefits:  Every residential mortgage loan will subject to two new Federal standards that apply to creditors, assignees and securitizers.  At the time the mortgage is entered into, the creditor must make a reasonable, good faith determination:

Ø                              that the consumer has a reasonable ability to repay the loan at a fully indexed fully amortizing rate, based on verified and documented information including the consumer’s credit history, current and expected income, debt-to-income ratio, and other financial resources; and

Ø                              for refinancings, that the loan will provide a net tangible benefit to the consumer, based on information known or obtained in good faith by the creditor. The Federal banking agencies shall jointly prescribe regulations that define “net tangible benefit,” and the bill provides that loans for which the cost of refinancing exceeds the newly advanced principal specifically do not provide a net tangible benefit.

·                    “Qualified Mortgage” Safe Harbor.  A limited safe harbor provides that prime, fully documented 30-year fixed-rate mortgages that have no negative amortization or interest-only features are presumed to meet the ability to repay and net tangible benefit standards.  This presumption is rebuttable.  Qualified mortgages are defined as loans for which

Ø                              the APR does not exceed an average prime offer rate, published by the Federal Reserve, by more than a specified percentage (1.5 percentage points for a first lien and 3.5 percentage points for a subordinate lien)

Ø                              the income and financial resources of the consumer are verified;

Ø                              the underwriting process is based on a fully-indexed rate;

Ø                              the loan meets a combined debt-to-income (DTI) test prescribed by the Federal banking agencies; and

Ø                              the loan has a fixed rate term of not less than or more than 30 years.

The Federal banking agencies shall jointly prescribe regulations that carry out the purposes of the qualified mortgage provision and may revise the criteria for defining a qualified mortgage when necessary or appropriate.

·                    Creditor Liability:  In addition to other remedies that a consumer may have against the creditor under the Truth in Lending Act, a creditor that violates the ability to repay or net tangible benefit standards is liable to the consumer for rescission plus the consumer’s costs for the rescission (including attorney’s fees) unless the creditor provides a cure within 90 days after receiving notice from the consumer.

Ø                              Cure means a no-cost modification or refinancing of the loan to provide terms that would have satisfied the minimum standards if the loan had contained such terms as of the origination date, as well as the payment of costs that the consumer incurred as a result of the violation.

·                    Assignee/Securitizer Liability (does not extend to trusts and investors):  Except as provided below, for loans that violate the bill’s standards (reasonable ability to repay and net tangible benefit), a consumer has an individual cause of action against assignees and securitizers for rescission of the loan and the consumer’s costs for rescission (including attorney’s fees), unless the assignee or securitizer provides a cure to make the loan conform to the minimum standards within 90 days of receiving notice from the consumer.

Ø                              Absent Parties:  If the creditor ceases to exist or is bankrupt, then a consumer may maintain a civil action against an assignee to cure a loan that violates the minimum standards.  If the creditor and each assignee cease to exist or are bankrupt, then the same civil action may be maintained against the securitizer.

Ø                              No class actions may be brought against an assignee or securitzer.

·        No investor liability.  In the case of loans held in pools for purposes of securitization, the terms assignee and securitizer specifically exclude the securitization vehicles that holds the loan, the loan pools, purchasers of the securitization vehicle, and investors in an instrument that represents an interest in such pool.

·                    Defense to Foreclosure:  When the holder of a mortgage loan or anyone acting on behalf of the holder initiates a judicial or non-judicial foreclosure, (1) a consumer who has a rescission right under this bill may assert such right as a defense or counterclaim to foreclosure against the holder to forestall foreclosure, or (2) if the rescission right has expired, a consumer may seek actual damages (plus costs) against the creditor, assignee, or securitizer.

·                    Tenant Protections:  Provides protections to tenants when the homes they rent go into foreclosure.

Ø                              For foreclosures occurring after the date of enactment:

§         tenants with a lease have a right to remain in the unit until the end of the existing lease;

§         if a purchaser intends to use the property as a primary residence, the lease may be terminated and the tenant must receive 90 days notice to vacate; and

§         tenants without a lease or with a lease terminable at will under state law must receive 90 days notice to vacate.

Ø      For foreclosures involving Section 8 housing assistance contracts:

§         successors in interest are subject to the pre-existing lease and housing assistance payment contracts for Section 8 recipients;

§         foreclosure does not constitute good cause for termination of Section 8 tenancy; however, under certain circumstances, such as when the property is unmarketable while occupied or the subsequent owner will occupy the unit as a primary residence, the foreclosure may constitute good cause for terminating the lease; and

§         public housing agencies may pay utilities that are the responsibility of the owner and reasonable moving costs for Section 8 tenants – after taking reasonable steps to notify the owner – if the agency is unable to make housing assistance payments to successors in interest after a foreclosure.

Ø      None of these provisions affects any State or local law that provides longer time periods and/or other additional protections for tenants.

·                    Additional Standards:  Includes a number of additional standards and requirements designed to protect consumers, including by—

Ø      prohibiting certain prepayment penalties;

Ø      prohibiting the creditor from directly or indirectly financing single-premium credit insurance in connection with a consumer mortgage loan;

Ø      prohibiting mandatory arbitration; and

Ø      requiring specific disclosures for loans that include negative amortization features.

·                    Effect on State Laws:  Provides a unique Federal remedy for assignee/securitizer/securitization vehicle liability arising from a claim regarding lack of reasonable ability to repay and lack of net tangible benefit, but does not limit—

Ø                              state laws that apply to creditors (including those that also act as an assignee, securitizer);

Ø                              availability of state remedies based upon fraud, misrepresentation, deceptive acts and practices (as defined in the bill), false advertising or civil rights laws

§         for the assignee/securitizer/securitization vehicle’s own conduct; or

§         in connection with that party’s sale or purchase of mortgages or securities. 

·                    Borrower Fraud:  Removes civil liability of creditor, assignee, and securitizer and cancels the borrower’s right of rescission if the borrower knowingly, willfully, and with actual knowledge furnished false information.

·                    Additional Disclosures:  Requires additional disclosures to consumers in connection with mortgage loans, including

Ø      in the case of an adjustable rate loan, a notice at least six month before the expiration of a fixed introductory rate that explains the rate adjustment process and the consumer’s alternatives; and

Ø      an annual notice regarding interest rate terms.

·        Legal Assistance for Foreclosure-related Issues: Directs HUD to make grants on a competitive basis to state and local legal organizations to provide a full range of foreclosure related legal issues to low- and moderate-income homeowners and tenants.

Ø                  Gives priority consideration in the awarding of grants to state and local legal organizations in the 100 metropolitan areas with the highest rates of home foreclosure; and

Ø                  These legal assistance funds may not be used for class action litigation.

·        Credit Risk Retention:  Requires the Federal banking agencies jointly to issue regulations that require creditors, with respect to loans other than qualified mortgages (as defined above), to retain an economic interest in a material portion (at least 5 percent) of the credit risk of each such loan that the creditor transfers, sells, or conveys to a third party.  A creditor may not directly or indirectly hedge or otherwise transfer the credit risk it retains under these regulations.

·                    GAO Study:  Directs GAO to conduct a study to determine the effects of the bill on the availability and affordability of credit for homebuyers and mortgage lending, and submit a report to Congress within one year of enactment.

Title III (High-Cost Mortgages)

·                    This title expands the scope of and enhances consumer protections for “high-cost loans” under HOEPA by, among other provisions:

Ø      lowering the APR trigger from 10% to 8% over comparable Treasuries (codifies existing Board standard), except if a dwelling is personal property and the loan is less than $50,000;

Ø      lowering the points and fee trigger from 8% to 5% for transactions of $20,000 or more and including additional costs and fees in the trigger;

Ø      prohibiting the financing of points and fees;

Ø      prohibiting excessive fees for payoff information, modifications, or late payments;

Ø      prohibiting practices that increase the risk of foreclosure, such as balloon payments, encouraging a borrower to default, and call provisions; and

Ø      requiring pre-loan counseling.

Title IV (Office of Housing Counseling)

·                    Establishes an Office of Housing Counseling at HUD that will carry out and coordinate homeownership and rental housing counseling programs.

·                    Requires the launch of a national public service, multimedia campaign to promote housing counseling and the establishment of a website and toll-free hotline;

·                    Authorizes the issuance of homeownership and rental housing counseling grants to HUD-certified state, local and nonprofit counseling organizations; and

·                    Requires HUD to update the Mortgage Information Booklet to provide consumers with a greater understanding of the terms of the home buying process.

Title V (Mortgage Servicing)

·        Requires borrowers with higher-cost and subprime loans to have accounts established in conjunction with their mortgages to provide protection against tax liens and the forced placement of hazard insurance, among other things.

·        Forces lenders to provide written disclosures about the need to pay taxes and insurance premiums to all borrowers if borrowers decide to waive the creation of or choose to close their escrow accounts. 

·        Mandates the inclusion of escrow payments for taxes and insurance in any repayment analysis provided to consumers at the time of a quote on a mortgage, to ensure that lenders alert borrowers to all of the costs involved in owning a home.

·        Updates the Real Estate Settlement Procedures Act to create new safeguards for borrowers, including detailing when the servicer can impose force-placed hazard insurance, mandating swifter responses to consumer written inquiries, increasing penalties for abuses, and requiring the prompt crediting of payments.

Title VI (Appraisal Activities)

·        Establishes stronger, enforceable Federal appraisal independence standards with tough penalties, which will allow appraisers to act as independent referees to verify the value of the property for the buyer, the seller, the lender, and the investor, among others.

·        Provides the Appraisal Subcommittee of the interagency Federal Financial Institutions Examination Council with a consumer protection mandate and enhances its ability to monitor the performance of State appraisal oversight agencies. 

·        Strengthens appraiser licensing and education standards, and establishes a Federal grant program to assist States in their appraisal regulatory activities.

Comments

[Cathy Bixby]

Bad Biz Finder Forms Class Action Lawsuit Against Landlord, UDR, on Behalf of CA Tenants

June 3, 2009 — badbizfinder |

On behalf of California tenants past and present, Bad Biz Finder, a Fremont, California-based consumer advocate announced today that it is forming a federal class action law suit against UDR, Inc., a real estate investment trust (REIT) that owns, acquires, renovates, develops and manages apartment communities nationwide.

The company was formed in 1972 as a Virginia corporation and in June of 2003 altered its state of incorporation to Maryland. Defendant UDR’s subsidiaries include two operating partnerships, Heritage Communities, L.P., a Delaware Limited Partnership and United Dominion Realty, L.P., also a Delaware Limited Partnership.

UDR is a publicly-traded Maryland corporation (Corporate Number D07353964 formed on May 2, 2003) (NYSE:UDR) with its principal place of business and agent for service of process located at 300 East Lombard Street, Baltimore, Maryland, 21202. UDR, Inc.’s corporate headquarters are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado, 80129.

Bad Biz Finder will facilitate Notice to UDR Shareholders of a pending class action lawsuit as required by the Securities & Exchange Commission.
The preliminary causes of action will be UDR’s longstanding practice of:

1. Illegal collection of early lease termination liquidated damage fees (amounting to 2.25 times base rent) motivating a higher than industry-standard eviction rate to facilitate a “double rent” revenue stream on vacated and quickly reletted apartments.

2. Illegal withholding of security deposits via unconscionable and oppressive hidden fees and penalties not apparent, nor defined at the time of lease execution, nor within the standard of acceptable normal wear and tear as prescribed by law.

3. Illegal and intentional misrepresentation, concealment and omission of proper legal name of “Landlord/Owner” on Lease contracts and illegal and intentional misrepresentation, concealment and omission of proper agent for service of process of “Landlord/Owner” in order to obtain and sustain a legal advantage over tenants resulting in a extremely low probability of tenant-based litigation. This also amounts to a violation of the tenant’s civil right to expeditiously bring a grievance to a court of competent jurisdiction.

4. Illegal profit-earning as a publicly-traded non-utility business via its Ratio Utility Billing System (RUBS) in violation of the Public Utilities Commission Act forbidding said profit. UDR is liable for deferring common area property utilities, utilities to vacant units and units under repair to tenants without a logistical need with the motivation of defraying property costs to tenants. In addition, UDR sustains another double revenue stream by not only charging its tenants to source the energy and water being supplied to the onsite public laundry rooms but by also charging them to use the coin-operated machines. Finally, UDR’s Lease requires that tenants deem the RUBS formula as fair and equitable even though it is solely comprised of calculated variables outside the control and knowledge base of its tenants.

5. Illegal deferral of liability via “hold harmless” clauses creating a “perception of justifiable negligence” in UDR’s failure to maintain habitable premises with regard to vector control, water quality, construction defects, as well as tenant and guest safety standards for security against unit and vehicle intrusion, sexual offenders, theft, and violence.

6. Illegal collection of late fees in excess of the standard of law which must be set at an annualized and noncompounded 10% interest rate.

7. Illegal and intentional misrepresentation, concealment and omission of material facts in Lease agreements with the express purpose to defraud tenants in order to create a cause of action for unlawful detainer to perpetuate the collection of early lease termination liquidated damage fees.

If you were or are a California tenant that has:

1. Signed and paid rent under a UDR Lease that does not state on the face of the Lease, the legal fictitious business name of “Landlord/Owner” as set forth with the Secretary of State;

OR

2. Signed and paid upon a Lease that does not contain the name, address and telephone number of the person or company to which you should serve legal documents (known as “the agent for service of process”);

OR

3. Paid 2.25 times their rent to vacate their apartment prior to Lease termination under the following Lease clause:

“Paragraph 37(a) Liquidated Damages for Landlord’s Lost Rent and Additional Reletting Costs. In the event this Lease is terminated early due to Resident’s breach, Resident shall pay Landlord the sum of $_______ (which represents 2-1/4 times the monthly rent due hereunder) as liquidated damages to cover Landlord’s resulting lost rent and additional reletting costs. In accordance with California Civil Code section 1671, Resident and Landlord agree that it is impractical and impossible to determine what Landlord’s actual lost rent and additional reletting costs will be if the Lease is terminated, because it cannot be predicted when during the Lease term resident may breach, what the rental market conditions will be at that time, and how long the Premises may stay vacant despite Landlord’s good faith efforts to relet the same. Resident and Landlord agree that the sum above is fair and reasonable, regardless of when the Lease is terminated. This limited liquidated damages sum covers Landlord’s lost rent and reletting costs ONLY.”

OR

4. Paid in excess of 1/3650th of their base rent for a late fee (divide their base rent by 3650 to come up with a daily rate and multiply it by 30). For example, if their rent is $1,700, their daily rate would be $.47 per day or $14.10 for a 30-day period;

OR

5. Paid utilities under a RUBS utility calculation as follows:

“Total monthly utility cost for the community (minus an allowance for common area use if applicable [which is not applicable in the present case]) divided by the number of persons residing at the community times the number of persons residing in the Premises using the applicable ratio multiplier [1 person = 1; 2 persons = 1.6; 3 persons = 2.2; 4 persons = 2.6; 5 persons = 3; each additional person, add..4 to the multiplier.]”;

OR

6. Tenant or a guest of theirs was injured, harmed, or violated on Premises and UDR deflected the liability back to you by pointing to the “hold harmless” clause in their Lease;

OR

7. Tenant relied upon any of the above intentional misrepresentations, concealments, or omissions as true and correct statements of fact and were harmed as a result of their reliance ….

Then tenant may qualify to participate in the Class Action Lawsuit.

Please email us the following information:

1. The exact dates of tenancy with UDR;

2. The full names of all parties that signed the Lease as a tenant (as they were at the time the Lease was executed);

3. The name, address and telephone number of the UDR property where tenant resided;

4. Tenant’s current address, email and telephone number if no longer a UDR tenant;

5. The name of the UDR agent that executed the Lease on behalf of UDR.

Even though this is a California-based class action lawsuit, we will initiate the action in federal court for the following reasons:

1. The amount in controversy will exceed $5,000,000;

2. All members of the class to be certified will be citizens of a state different from the defendant, UDR.

3. Even if we initiated the action in a California state court, UDR would more than likely fight to move it to a federal court

Their Lease agreement is a “California Version 2007” Lease and California law controls.

This case will be based on a common injury sustained as a result of the action taken by UDR pursuant to its policies that apply to all California tenants as set forth in you “CA Version” Lease.

Because of the fact that the issues are the same for all California tenants, there is a much better chance that they can overcome any objection by UDR to try the cases individually.

Bad Biz Finder
http://badbizfinder.wordpresss.com
badbizfinder@aol.com

[Chris]

It is about time something like this went nationwide. I really think it should be even stricter. I know a lot of people think that people can make decisions for themselves, but in reality this is not true. There is a foreclosure across the street from me, so I decided to check the land records. The people refinanced about every two years. The last one came about a year ago for $187,000 at 10.25% which refinanced a loan that was from two years earlier. The max APR was 17.25%, with no love on the downside if rates (as they did) went down. The house was foreclosed, and now is on the market for $94,500 and the listing states that it will be a cash sale. I would love to see the appraisal on that listing.