WASHINGTON — U.S. Sen. Jeff Merkley, D-Ore., introduced two bills on Tuesday to target deceptive lending practices, a few days before the U.S. Senate is expected to vote on a housing bill.
Since taking office in January, Merkley has spent much of his energy on the housing crisis, lobbying in favor of foreclosure assistance in the second half of the financial bailout and tracing the history of the housing collapse in his first Senate speech.
His bills would block future prepayment penalties, which charge homeowners who pay off loans early, and yield-spread premiums, also called steering payments, which let lenders reward mortgage brokers for steering borrowers into higher-interest loans.
“Instead of fulfilling a dream and contributing to a secure financial future, home mortgages have become a vehicle for stripping wealth from working Americans,” Merkley said in a Senate speech on Tuesday. “This new legislation will restore transparency to the mortgage lending process and help make home ownership a stable investment for families once again.”
Those practices were a big problem for Central Oregon homebuyers in the past, said Selef Spragg, a housing center specialist for NeighborImpact, a Redmond nonprofit. But since the sub-prime mortgage market dried up, he’s seen far fewer people having trouble with prepayment penalties or steering fees.
“In the past, it was a huge thing, actually,” Spragg said. “I saw prepayment penalties up to $16,000 to $20,000. It was ridiculous for some people.”
The provisions also are included in a broader mortgage regulation bill sponsored by Rep. Brad Miller, D-N.C., but that bill has not received a vote in the House Financial Services Committee.
Denise Leonard, the chairwoman of government affairs for the National Association of Mortgage Brokers, was generally supportive of the limiting prepayment penalties and steering payments, when he testified before the House Financial Services Committee last week.
“We believe that it is important to prohibit loan originators from being incentivized to push specific loan products based solely upon the compensation they are likely to receive,” Leonard said, adding that it is important that regulations don’t limit consumers’ loan options.
At the same hearing, on behalf of the Independent Community Bankers of America, Michael Menzies Sr., the president and CEO of the Easton Bank and Trust Co., agreed that steering fees could be banned.
“It is appropriate for Congress to consider legislation to prevent a mortgage originator from steering a consumer to a sub-prime product when the consumer qualifies for a prime loan, or promoting a mortgage product with predatory characteristics.”
Merkley could offer those bills as amendments to the larger housing bill, which could receive a vote as soon as Thursday.
Merkley is pushing for Democratic leaders to retain a housing bill provision that would let bankruptcy judges rewrite the terms of mortgages, a procedure sometimes called “cramdown.”
In an interview last week, Merkley said giving judges that power will prod mortgage servicing firms to respond to homeowners desperate to lower their payments.
“You are going to suddenly have a person on the other end of the line when you call and say if I don’t work out an adjustment on my mortgage, I’m unable to make my payments,” Merkley said. “Right now, there is dead silence on the other end of the line. You can’t get through.
“I hear Oregonians in every part of the state who say, ‘I call and call and call,’ and if they do get in touch with someone, that person says, ‘I have no authority.’”
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