WASHINGTON, DC – Today, Oregon’s Senator Jeff Merkley introduced an amendment to the Wall Street reform bill that will ban one of the most egregious mortgage practices that directly led to millions of families losing their homes. The amendment will ban mortgage lenders and loan originators from receiving hidden payments when they steer homeowners into high-cost loans and will require lenders to ensure that borrowers have the ability to repay their loans.
“Countless families entrust their mortgage lenders to do right by them when they buy a home,” said Merkley. “Unfortunately, steering payments have put the interests of lenders at odds with the best interests of their clients. My amendment will ban this abusive practice and restore fairness and transparency to one of the most important financial transactions a family ever makes.”
The Merkley amendment will ban mortgage lenders and loan originators from accepting payments based on the interest rate or other terms of the loans. It would also prohibit a loan originator from receiving compensation from any party other than the borrower if they have already been compensated by the consumer. In addition, it will require lenders to verify borrowers’ ability to repay their loans from income and assets other than the home’s value. To help homeowners better afford the up-front costs of their mortgage, the legislation will still allow homebuyers to finance their closing costs as part of their loan.
“This predatory subprime mortgage practice directly led to the collapse of our largest financial firms and resulted in millions of lost jobs and foreclosed homes,” said Merkley. “I urge my colleagues on both sides of the aisle to join this effort to put an end to deceptive mortgage practices that hurt our economy and threaten the livelihood of families in communities across the country.”
Under the current rules, mortgage lenders and loan originators are allowed to steer families into high-cost and riskier loans, even when they qualify for affordable loans. A Wall Street Journal study found that 61 percent of the subprime loans that originated in 2006 went to families who qualified for prime loans. This practice was a key driver of the housing bubble and, ultimately, the foreclosure crisis that has devastated communities across the nation.
Co-sponsors for the amendment include Senators Amy Klobuchar (D-MN), Chuck Schumer (D-NY), Olympia Snowe (R-ME), Scott Brown (R-MA), Mark Begich (D-AK), Barbara Boxer (D-CA) and Chris Dodd (D-CT).
Earlier this year, Senator Merkley successfully pushed to include a provision in the Wall Street reform bill that will ban prepayment penalties. Prepayment penalties are exorbitant fees that trap families into unaffordable loans and make it nearly impossible for families to refinance their loans.