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April
2001
Senate Approves Bankruptcy Bill 83-15
The Senate voted 83-15 in mid-March to approve a bill to overhaul the
bankruptcy code. A similar bill passed the House overwhelmingly on March
1. The bill now goes to conference where it will be marked up and voted
on by the House and Senate for final approval. If the legislation becomes
law, it will be the largest overhaul of federal bankruptcy protection in
20 years. Sen. Charles Schumer (D-NY) introduced an amendment to the bill
that would subject a transferee of servicing to liability for any claims
that the borrower had against the bankrupt entity. These claims could
extend beyond those related to the Truth-in-Lending Act. The amendment
primarily affects very large servicers because
they will no longer be able to purchase servicing portfolios of bankrupt servicers free of borrowers' claims and defenses. The
impact for the mortgage broker is indirect as there will be a minor
effect on marketability for all loan originators in the investment world.
Sen. Charles Grassley (R-IA) has tried for four years to pass the
bankruptcy measure. Grassley's measure steers individual debtors toward
Chapter 13 versus Chapter 7 bankruptcy. Chapter 7 bankruptcy allows
debtors to rebuild their personal finances while forgiving most of their
high-interest debt and in some cases all their debt. Chapter 13
bankruptcy establishes a steady payment schedule for debtors to repay
their obligations. An earlier amendment to the bill was defeated in the
Senate thanks to NAMB's Regional Vice Chairs
who played a pivotal role in defeating the amendment.
Fed Cuts Interest Rates by Half-point
The Federal Reserve cut interest rates by half a percentage point on
March 20, in an effort to stave off the first recession in a decade. The
cut, the third this year, took the federal funds rate from 5.5 percent
down to 5 percent. The Federal Reserve also cut the discount rate to 4.5
percent from 5 percent. Economists expect the cut, over time, to lower
the cost of mortgages, credit card payments and car loans, strengthening
a weakening economy. Some analysts expected the Federal Reserve to make a
more aggressive three-quarter-point cut. The Fed hinted that it may cut
rates further in the future. The next Open Market Committee is scheduled
for May 15.
House and Senate to Examine HUD's FHA
Insurance Fund
Sen. Wayne Allard (R-CO), chairman of the Subcommittee on Housing and
Transportation, started hearings regarding the FHA Mortgage Insurance
Fund in late March to examine the findings of a General Accounting Office
(GAO) report on the Single-Family Mutual Mortgage Insurance Fund. The
Housing and Community Opportunity Subcommittee of the House Financial
Services Committee led by Rep. Marge Roukema (R-NJ),
also started hearings. The hearings address a report by GAO which states
that serious problems still exist with the FHA mortgage insurance program
and its rental housing assistance program. During FY2000, the FHA lost
approximately $1.9 million on the sale of foreclosed homes it insured.
The GAO statement suggests "reducing the number of HUD program areas
deemed to be high risk." It is the first in a series of hearings to
assess the current housing and mortgage finance market and infrastructure
to determine appropriate legislative remedies. The Mutual Mortgage
Insurance Fund is required by Congress to maintain a capital reserve
ratio of 2 percent. The HUD reported in early 2000 that the fund had a
capital reserve ratio of 3.66 percent and began pursuing proposals for
new spending with what it perceived as available surplus funds. Sen.
Allard plans to introduce a bill that would raise the minimum capital
ratio to 2.5 or 3 percent and resume premium rebates to FHA borrowers
when the reserve ratio is above 3 percent. Senate Democrats want to use
surplus FHA revenues to establish a trust fund for multifamily
production. The GAO report also suggested strengthening the integrity of
the single-family loan origination.
Bush Seeks Multifamily Loan-limit Hike
The Bush administration is seeking an increase in FHA loan limits on
multifamily loans as part of its budget proposal. Housing groups have
been lobbying for a 25 percent increase in the multifamily loan limits
and for higher loan limits in high cost areas in anticipation of
increasing FHA multifamily construction. "Skyrocketing construction
costs have resulted in a virtual halt in building of multifamily homes
across America," said
Housing Secretary Mel Martinez before the National Council of State
Housing Agencies. By increasing the loan limits by 25 percent, multifamily
insurance will be available to help increase production in almost every
region of the country, according to HUD.
John Weicher
to Be Nominated for FHA Post
The White House said that President Bush intends to nominate John Weicher to the post of FHA commissioner, which also
carries the title of assistant secretary of HUD. Weicher
served on Bush's election campaign as his point man on housing issues.
During the first Bush administration, Weicher
served as HUD assistant secretary for policy development and research
(1989-1993). During this time he helped design a recapitalization plan
for the FHA single-family insurance fund that was passed in 1990. Since
1993, he has been a senior fellow and director of urban studies at the
Hudson Institute in Washington DC.
Rep. John LaFalce Introduces Predatory
Lending Consumer Protection Act and Equal Credit Enhancement and
Neighborhood Protection Act
The ranking Democrat on the House Financial Services
Committee, Rep. John LaFalce (D-NY), has introduced two bills: the
Predatory Lending Consumer Protection Act of 2001 and the Equal Credit
Enhancement and Neighborhood Protection Act of 2001. The Predatory
Lending Consumer Protection Act of 2001 would amend the Home Ownership
and Equity Protection Act (HOEPA) and the Fair Credit Reporting Act
(FCRA). Overall, the bill would expand HOEPA to capture more loans within
its coverage, reduce HOEPA's triggers, require
additional disclosure 72 hours prior to closing, dramatically increase
civil penalties for TILA violations and require creditors to report
favorable and unfavorable payment histories. Clearly, the bill will track
many of the state initiatives on the federal level; however it does not
contain any preemptive language so creditors will still be subject to the
state laws currently imposed. Of perhaps the most important significance
is the fact that indirect mortgage broker compensation (i.e. yield spread
premiums) is proposed to be included in the points and fee trigger. This
will indirectly lower the points and fee trigger to capture even more
loans. Lenders could potentially shy away from this type of compensation.
The Equal Credit Enhancement and Neighborhood
Protection Act of 2001 would amend portions of the Equal Credit
Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA) to
reduce the incidence of predatory lending on minorities. The proposed
changes reflect positions the U.S. Department of Justice has taken
historically under existing law. The proposed HMDA amendments are
significant to mortgage brokers because additional data collected under
HMDA would be used as a tool to unfairly label subprime
lenders as "predatory lenders." Also, the expansion of data
collected will force all those subject to HMDA to incur tremendous costs
in changing their data collection systems. This bill, along with the
Predatory Lending Consumer Protection Act of 2001, represents the latest
in attacks on "predatory lending." Their impact on the mortgage
industry would be significant.
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