12 Ways in which Congressman Kanjorski’s Original Bill Sought
to Protect Homebuyers

Congressman Paul E. Kanjorski (D-PA) worked to draft and, in March 2005, helped to introduce H.R. 1295, the Responsible Lending Act. Listed below are a dozen specific examples of how H.R. 1295 would have strengthened protections over existing law at the time. If it had become law, it would have also helped to avoid many of the problems experienced in the mortgage markets starting in early 2006 and running through the first half of 2007.

1. Strengthen Repayment Ability Requirement – The bill would have applied a strong debt-to-income and residual income repayment ability tests and additional verification requirements in order to ensure that consumers did not take out mortgages that they could not afford.
   
   
2. Ban “Steering” – The bill would have prohibited mortgage lenders and mortgage brokers from steering borrowers to purchase more costly loans than those for which they would otherwise qualify.
   
   
3. Ban Negative Amortization – The bill would have generally prohibited negative amortization for higher-cost mortgages. Negative amortization (that is, increasing the size of the principal on a mortgage after it is established) is one key way by which predatory lenders hurt borrowers.
   
   
4. Bar Encouraging Default – Encouraging a borrower to default on an existing loan would have been prohibited. Many borrowers hurt by the recent subprime lending abuses took out more costly subprime loans only after their lenders first encouraged them to default. The bill would have barred lenders and servicers from encouraging loan defaults.
   
   
5. Establish Mortgage Broker Licensing Standards and National Broker Registry – State licensing requirements for mortgage brokers vary widely. In addition, some unethical brokers simply move to another jurisdiction when they are sanctioned for improper actions. Because mortgage brokers originate the majority of all mortgages, high standards and increased oversight are necessary. The bill would have established minimum broker licensing standards and created a national broker registry not only to help consumers inform themselves about the brokers with whom they deal, but also to increase oversight by regulators. Many now recognize the key role that unscrupulous mortgage brokers played in creating the recent lending problems in the subprime marketplace. State regulators are working to improve broker licensing and monitoring systems, and federal policymakers are working on similar reforms. As part of the Housing and Economic Recovery Act, which becomes law in 2008, the Congress incorporates a mortgage broker licensing and registry system that is comparable to the one proposed by Congressman Kanjorski more than three years earlier.
   
   
6. Expand Borrower Education and Counseling Opportunities – The bill would have created a new HUD office to better administer education and counseling programs and improve program standards. If subprime borrowers had known more about the mortgage process through these enhanced counseling services, they would have been able to better protect themselves from problematic mortgages.
   
   
7. Enhance Appraiser Independence and Oversight – To help ensure that a home’s value is properly estimated, the bill would have established a new federal standard to abate appraiser intimidation and protect their independence. It would have also enhanced the federal oversight of state appraisal programs, and improved appraiser licensing and educational standards. Many subprime borrowers have now learned that they also had inflated appraisals to justify the transaction. Congressman Kanjorski believes that we need to restore the role of appraisers as an honest referee in determining a home’s value for the buyer, the seller, the lender, and the investor. To protect appraisers from coercion, the Federal Reserve Board approves appraiser independence regulations in July 2008 that are quite similar to the reforms called for in Congressman Kanjorski’s bill.
   
   
8. Toughen Penalties – The bill would have increased the Truth in Lending Act’s monetary penalties and applied additional penalties for higher-cost mortgages covered by the Home Ownership and Equity Protection Act (HOEPA). The threat of greater fines for legal violations of tougher standards might have deterred mortgage originators, brokers, servicers, and others involved in mortgage transactions from pursuing predatory practices.
   
   
9. Cover More Loans – The bill would have expanded HOEPA’s protections by lowering the interest rate trigger for a loan covered by law. The bill would have also, for the first time, covered home equity lines of credit and home purchase loans. Many of the home loans made starting in late 2005 would have therefore exceeded HOEPA’s new thresholds established under the bill. By covering far more loans with HOEPA’s enhanced consumer protections for higher-cost mortgages, the bill would have protected many borrowers now experiencing financial difficulties.
   
   
10. Require Escrow Accounts and Disclosures – Subprime borrowers often have difficulties in paying property taxes and insurance costs because they do not have escrow accounts. The bill would have required lenders or servicers to establish escrow accounts for most subprime borrowers so that they would not have been caught short of funds for paying for property insurance and taxes. The Federal Reserve Board as part of its July 2008 HOEPA rulemaking finalizing regulations requiring escrow accounts for subprime borrowers.
    
    
11. Update Mortgage Servicing Standards – The bill would have updated the Real Estate Settlement Procedures Act (RESPA) with regard to mortgage servicing practices in order to better protect consumers and expedite responses to borrower complaints. The bill’s increase in RESPA’s monetary penalties would have also served as a deterrent to bad actors in the mortgage marketplace. As part of its July 2008 HOEPA final rule, one of the standards adopted by the Federal Reserve requires the prompt provision of payoff statements (so that borrowers can have knowledge about what amounts they need to refinance their mortgages). More than three years earlier, Congressman Kanjorski first proposed these reforms in H.R. 1295.
    
    
12. Provide Optional Foreclosure Prevention Counseling Assistance – The bill would have created a new voluntary consumer opt-in provision at the time a mortgage is established to help any borrower who later encountered difficulties in paying a mortgage to obtain foreclosure prevention counseling assistance from an independent third party. In other words, many of the families who have now experienced problems in paying their mortgages might have gotten help sooner and been able to keep their homes.