H.R. 1728 would place a number of new federal restrictions on mortgage loan providers, servicers, brokers, and third parties who buy or sell mortgages on secondary securities markets, as well as appraisers.  The bill also holds creditors liable if they do not comply with the new regulations. 

According to the Majority, the purpose of the legislation is to limit predatory lending practices and restrict lenders from making loans available to consumers that cannot afford them.  Some Members, however, have expressed concerns that the legislation may limit mortgage loan access to credit-worthy consumers even as the Federal Reserve is set to impose new regulations to combat abusive lending practices.  Below is a brief executive summary of the legislation, followed by additional background on the bill and, finally, a detailed description of H.R. 1728.

Title I-Residential Mortgage Loan Origination Standards:

• Prohibits a mortgage loan originator from offering a loan that the consumer does not have a reasonable ability to repay, or a loan that has "predatory characteristics," such as equity stripping and excessive fees and abusive terms.
• Prohibits mortgage loan originators from steering consumers towards refinancing if it does not provide the consumer with a "net tangible benefit."
• Makes mortgage originators liable for punitive damages of up to three times the total amount of the original mortgage for any violation of regulations imposed under this section.
• Requires the federal banking agencies to jointly issue regulations against residential mortgage terms or practices that the agencies find to be abusive, unfair, deceptive, or predatory.

Title II-Minimum Standards for Mortgages:

• Prohibits a mortgage creditor from making a residential mortgage unless the creditor makes a reasonable determination that the consumer has the ability to repay.
• Prohibits a creditor from refinancing an existing residential mortgage loan unless the creditor determines that the refinanced loan will provide a "net tangible benefit" to the home owner.
• Provides a so-called "safe harbor" from liability for any mortgage creditor, or any person that transfers a mortgage loan into a securitization vehicle, for a "qualified mortgage," and defines the term qualified mortgage. 
• Makes any mortgage creditor that provides a new mortgage or a mortgage refinancing in violation of this section liable.
• Allows tenants living in homes that have been foreclosed upon to stay in the home until such time as provided by their lease if the home is sold or transferred to a new owner, unless the new owner is to use the home as his or her primary residence.

Title III-High Cost Mortgages

• Expands the Home Ownership and Equity Protection Act (HOEPA) by revising and enlarging the definition of "high-cost mortgages" to include money loans, construction loans, and open-end loans-none of which are covered under current law.
• Limits late fees on high-cost mortgages, prohibits a creditor from accelerating indebtedness on a high-cost mortgage, and prohibits refinancing into a new high-cost mortgage if there is no net tangible benefit to the consumer.

Title IV-Office of Housing Counseling

• Establishes the Office of Housing Counseling within HUD to oversee all activities and matters relating to homeownership counseling and rental housing counseling.
• Requires the Secretary of HUD and an advisory committee to establish and monitor standards for materials, information, and forms to be used by organizations providing homeownership counseling services.
• Authorizes $45 million annually through 2012 to provide grants to HUD-approved housing counseling agencies and State housing finance agencies.

Title V-Mortgage Servicing

• Requires creditors of certain mortgages to establish escrow accounts at the consummation of the mortgage transaction to pay for taxes and insurance in some circumstances.
• Prohibits servicers of mortgages that are guaranteed, insured, or otherwise regulated by a government agency, from obtaining "forced-place insurance" (insurance taken out by a creditor on a property) unless there is a reasonable basis to believe the borrower has failed to comply with the loan contract's requirements to maintain property insurance.

TITLE VI-Appraisal Activities

• Prohibits a creditor from providing a subprime mortgage without obtaining a written appraisal of the property.
• Prohibits a creditor from mischaracterizing the value of a property, influencing the appraiser, or withholding payment to the appraiser based on the outcome of an appraisal.
• Provides for civil penalties on creditors of up to $10,000 for each day the violation continues for the first offense and $20,000 each day for the second violation.  
• Amends the mission statement of the Appraisal Subcommittee (ASC) to include providing consumer protection as one of the ASC's primary goals and increases fees on licensed appraisers to pay for increased administrative costs.

H.R. 1728 would place a number of new federal restrictions on mortgage loan providers, servicers, brokers, and third parties who buy or sell mortgages on secondary securities markets, as well as appraisers.  The bill also holds creditors liable if they do not comply with the new regulations. 

According to the Majority, the purpose of the legislation is to limit predatory lending practices and restrict lenders from making loans available to consumers that cannot afford them.  Some Members, however, have expressed concerns that the legislation may limit mortgage loan access to credit-worthy consumers even as the Federal Reserve is set to impose new regulations to combat abusive lending practices.  Below is a brief executive summary of the legislation, followed by additional background on the bill and, finally, a detailed description of H.R. 1728.

Title I-Residential Mortgage Loan Origination Standards:

• Prohibits a mortgage loan originator from offering a loan that the consumer does not have a reasonable ability to repay, or a loan that has "predatory characteristics," such as equity stripping and excessive fees and abusive terms.
• Prohibits mortgage loan originators from steering consumers towards refinancing if it does not provide the consumer with a "net tangible benefit."
• Makes mortgage originators liable for punitive damages of up to three times the total amount of the original mortgage for any violation of regulations imposed under this section.
• Requires the federal banking agencies to jointly issue regulations against residential mortgage terms or practices that the agencies find to be abusive, unfair, deceptive, or predatory.

Title II-Minimum Standards for Mortgages:

• Prohibits a mortgage creditor from making a residential mortgage unless the creditor makes a reasonable determination that the consumer has the ability to repay.
• Prohibits a creditor from refinancing an existing residential mortgage loan unless the creditor determines that the refinanced loan will provide a "net tangible benefit" to the home owner.
• Provides a so-called "safe harbor" from liability for any mortgage creditor, or any person that transfers a mortgage loan into a securitization vehicle, for a "qualified mortgage," and defines the term qualified mortgage. 
• Makes any mortgage creditor that provides a new mortgage or a mortgage refinancing in violation of this section liable.
• Allows tenants living in homes that have been foreclosed upon to stay in the home until such time as provided by their lease if the home is sold or transferred to a new owner, unless the new owner is to use the home as his or her primary residence.

Title III-High Cost Mortgages

• Expands the Home Ownership and Equity Protection Act (HOEPA) by revising and enlarging the definition of "high-cost mortgages" to include money loans, construction loans, and open-end loans-none of which are covered under current law.
• Limits late fees on high-cost mortgages, prohibits a creditor from accelerating indebtedness on a high-cost mortgage, and prohibits refinancing into a new high-cost mortgage if there is no net tangible benefit to the consumer.

Title IV-Office of Housing Counseling

• Establishes the Office of Housing Counseling within HUD to oversee all activities and matters relating to homeownership counseling and rental housing counseling.
• Requires the Secretary of HUD and an advisory committee to establish and monitor standards for materials, information, and forms to be used by organizations providing homeownership counseling services.
• Authorizes $45 million annually through 2012 to provide grants to HUD-approved housing counseling agencies and State housing finance agencies.

Title V-Mortgage Servicing

• Requires creditors of certain mortgages to establish escrow accounts at the consummation of the mortgage transaction to pay for taxes and insurance in some circumstances.
• Prohibits servicers of mortgages that are guaranteed, insured, or otherwise regulated by a government agency, from obtaining "forced-place insurance" (insurance taken out by a creditor on a property) unless there is a reasonable basis to believe the borrower has failed to comply with the loan contract's requirements to maintain property insurance.

TITLE VI-Appraisal Activities

• Prohibits a creditor from providing a subprime mortgage without obtaining a written appraisal of the property.
• Prohibits a creditor from mischaracterizing the value of a property, influencing the appraiser, or withholding payment to the appraiser based on the outcome of an appraisal.
• Provides for civil penalties on creditors of up to $10,000 for each day the violation continues for the first offense and $20,000 each day for the second violation.  
• Amends the mission statement of the Appraisal Subcommittee (ASC) to include providing consumer protection as one of the ASC's primary goals and increases fees on licensed appraisers to pay for increased administrative costs.