by Calculated Risk on 4/05/2009 10:26:00 AM

From the LA Times: Bill would fundamentally reform home mortgage industry.

The Mortgage Reform and Anti-Predatory Lending Act of 2009 (H.R. 1728) was introduced March 26 by coauthors Rep. Brad Miller (D-N.C.), Rep. Melvin Watt (D-N.C.) and Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee ...

Here's what the legislation would do:

* Ban all fees paid to loan officers that are tied to the interest rate of the mortgage or the type of the loan. ...

* Create mandatory minimum national quality standards for all mortgages. The rules would encourage lenders to make fully documented 30-year, fixed-rate loans with prevailing market rates, as opposed to loans with higher-risk features such as adjustable payments and negative amortization. The bill would also impose a federal "duty of care" standard requiring loan officers to offer applicants terms and rates that are "appropriate" to their income and ability to repay. ...

* Allow borrowers who are put into mortgages that violate the new law to seek legal redress through cancellation of the loan contract, refund of all payments and fees and compensation for legal costs.

Borrowers who lied or committed fraud on their loan applications would have no such recourse. The bill would also extend liability for rule violations to third-party securitizers who buy loans for repackaging into mortgage bonds. Originators of all but fully documented 30-year, fixed-rate loans would be required to retain at least a 5% stake in the loan until it's finally paid off. If the loan goes into default, they would retain some economic stake in the losses.

We need to see the details. If lenders are required to take a 5% stake in all but 30-year fixed-rate loans, many of the non-traditional loans will go away (especially from smaller lenders).

I also hope Mr. Frank will not try to bring back DAPs again. The data is conclusive - DAPs are bad for housing, the economy and America.

Update: Here is the text of the bill.