The Honorable Christopher Dodd
Chairman
Senate Committee on Banking, Housing and Urban Affairs
Washington, DC 20510

The Honorable Barney Frank
Chairman
House Committee on Financial Services
Washington, DC 20515

RE:  Mortgage and Foreclosure Issues in Financial Reform Conference

Dear Chairman Dodd and Chairman Frank:

Thank you for all your hard work on bringing much-needed legislative reform to the financial services arena, particularly through the Consumer Financial Protection Agency/Bureau. We deeply appreciate your commitment to the legislation, and we are especially grateful that both chambers have included strong substantive mortgage origination standards within the context of
the larger financial reform effort.

While the mortgage provisions in both bills represent significant improvements over the current situation, we suggest the following recommendations for areas in which they differ:

• Anti-Steering: The Senate bill contains a more effective anti-steering provision limiting yield spread premiums that would prevent loan originators (both independent brokers and retail loan officers) from receiving additional compensation for steering people toward a more expensive and riskier loan than they qualify for based on their income and credit history, both because of better penalties for violation and because it does not contain loopholes that could be exploited to evade the rule. On the other hand, the House bill contains additional anti-steering regulatory authority that we would like to include with the Senate yield-spread provision. We support the Senate yield-spread provision with the House language regarding anti-steering regulations.
• Additional Subtitles: We support the House bill’s prohibitions on residential mortgage arbitration and single premium credit insurance; the subtitle improving protections for very high-cost (HOEPA) loans; the establishment of the Office of Housing Counseling, which would provide support to community organizations that assist homeowners facing foreclosure as well as future homeowners; and the subtitles on mortgage servicing and appraisal reforms,
• Foreclosure Prevention: We support the House bill’s anti-foreclosure provisions, including the $3 billion fund to assist homeowners facing foreclosure due to unemployment or medical debt, the authorization of unding for nonprofit lawyers assisting homeowners facing foreclosure, support for the Neighborhood Stabilization Program, and crucial “fixes” to the HAMP foreclosure prevention program. There are currently more than six million people at risk of losing their homes. Time is of the essence if we want to prevent further unnecessary foreclosures, particularly for people experiencing job loss.

Perhaps most important, for the bill’s mortgage standards to be meaningful, they must effectively fix the misalignment of incentives throughout the mortgage market by containing:

• Penalties meaningful enough to change lender and secondary market behavior.
• The same penalties for securitized mortgages as for other mortgages.
• Freedom for state legislatures to pass more stringent laws if the federal standards do not adequately address local problems.
• Consistency of standards throughout the mortgage market.

To meet those goals, there are several important changes that need to be made in the House bill.

• Although the bill creates a strong remedy that requires consumers whose loans contain violations to be put back in the same financial position as they were prior to the loan’s issuance (“rescission”), the availability of that remedy will be limited or eliminated by another provision in the bill known as the “cure” provision. The cure gives creditors 90 days to “fix” a loan originated illegally after a consumer notifies them of the violation, no matter how long ago the loan was originated, without any penalties. If this provision remains in the bill, it is likely that lenders will simply factor the occasional cure into the cost of doing business.
• Except for mortgages already in foreclosure, the bill also provides a special shield from liability for mortgages that have been bundled into mortgage-backed securities – the very mortgages that are proving most problematic to fix as we try to address the foreclosure crisis. Instead of permitting those mortgages to be subject to the same remedies as a mortgage that is sold whole to be held in portfolio, it instead requires the homeowner to pursue a cause of action against the company that created the security, but does not own the mortgage. What’s more, the bill does not allow states to enact stronger remedies against Wall Street than those described above.
• The bill permits FHFA, HUD, VA, and other regulators of government-backed loans to make their own rules concerning the House “qualified mortgage” definition. We believe it is crucial for standards and definitions to be uniform across all types of loans.

Thank you again for your commitment to crafting strong and effective mortgage origination standards and foreclosure prevention measures within the new legislation.  Please let us know what we can do to assist you in the conference process.

Sincerely,

American Federation of Labor and Congress of Industrial Organizations
Americans for Financial Reform
Center for NYC Neighborhoods
Center for Responsible Lending
Community Legal Services Of Philadelphia
Consumer Action
Consumer Federation of America
HomeFree~USA
Illinois People’s Action
Leadership Conference on Civil and Human Rights
NAACP
National Association of Consumer Advocates
National Consumer Law Center (on behalf of its low-income clients)
National Community Reinvestment Coalition
National Council of La Raza
National Fair Housing Alliance
National Legal Aid and Defender Association
National People’s Action
Neighborhood Economic Development Advocacy Project (NEDAP)
Philadelphia Unemployment Project
PICO National Network
Service Employees International Union