Sunday, November 18, 2007

The Negative Impacts of the Mortgage "Reform" Act

As Rottenchester points out, Congressman Kuhl was one of 127 Republicans to vote against passage of H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. To be sure, there are a few good items in this bill, particularly stricter licensing requirements for mortgage brokers. As someone who deals with borrowers, brokers, and lenders on a daily basis, and sees the horrors done to people if a bank forecloses on their home, I understand the need for reform. But just because a bill has some positive attributes doesn't mean it's the best thing for this country, and in this case, the negatives greatly outweigh the positives.

Dr. Ronald D. Utt of the Heritage Foundation states that this bill:

would encourage lenders to limit their lending to only the very best credit risks. This would put individuals of moderate incomes, imperfect credit histories, and limited wealth at an even greater disadvantage, leading to a decline in the homeownership rate, now at record levels. Among the victims of this mandatory credit quality cleansing would be members of some ethnic minority groups whose current homeownership rates are today only slightly better than the homeownership rate for the nation as a whole in 1890. ...
As currently written, H.R. 3915 would force an unprecedented measure of caution on mortgage lenders by forcing them to acquire much more information than has been typical in the past and thereby intrude upon borrowers' privacy. It also would establish an explicit series of credit standards for lenders, which could have the effect of excluding many moderate income borrowers from the ownership market. In sum, the enactment of H.R.3915 would delay the housing market recovery that is now struggling to get underway.

There is no doubt that lenders were too lax in the past when issuing loans, which was a major cause for the nation's current housing woes (the other leading cause being borrowers who got in over their heads). But I know first hand that lenders are already adding many more hurdles to the underwriting process than ever before, with some borrowers having to wait several months before getting their loans cleared, with many adverse results, including rate extension fees and even losing the house they want to purchase due to nervous sellers frustrated with the process.

I realize that some people just do not have the finances to afford a home at this time, and they should be turned down from getting a mortgage they can't afford to repay rather than ultimately lose their homes and face the prospect of terrible credit ratings and/or bankruptcy. But punishing borrowers who have decent but not perfect credit is not the solution, and that's what this legislation will do if enacted into law.

Congressman Kuhl's vote is not one for the banks and brokers, but rather for the thousands of constituents in his district without the best of credit who would be negatively impacted by the passage of this bill in its current state.

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