Mortgage Bankers Association of Southwest Florida
July 17, 2008
Foreclosure Prevention Act of 2008– U.S. Senate
On July 11th, the Senate passed the Foreclosure Prevention Act of 2008 by vote of 63 to 5. This bill
contains a number of provisions which are supported by MBA, including 1) an voluntary homeownership
rescue program, insured by FHA, when lenders write down loan balances; 2) FHA Modernization; 3) the
creation of a new regulator to oversee Fannie Mae/Freddie Mac; 4) Truth-in-Lending Act reform, which
increases disclosure requirements; and 5) support of a national licensing system, implemented on the state
level, with minimum requirements for loan originators. This bill will now return to the House for further
changes, including a determination on the effective date of the above provisions. Congress will adjourn for
summer recess on August 8th, so supporters of this legislation are eager for a House vote as quickly as
possible so that the bill can be presented to the President by month-end.
Fannie Mae/Freddie Mac
Oversight reform for Fannie Mae and Freddie Mac (GSEs) has topped MBA’s legislative agenda for nearly a
decade. The need for GSE reform was amplified this past Friday, when concerns emerged that Fannie and
Freddie would need to raise substantial capital in order to cover anticipated mortgage losses, due to
continued turmoil in the credit markets. Steep declines in Fannie and Freddie stock prices prompted steps by
the Treasury Department and Federal Reserve in an effort to avert a crisis of confidence in the agencies.
These steps would include an increase in GSEs’ credit lines from Congress, the ability for the U.S.
government to buy shares in their companies, and the promise of loans from the Federal Reserve, if needed.
While some view these proposals as simply putting explicit terms to the implicit government backing of the
GSEs, there are critics who feel that additional financial support of the agencies may carry too high a cost to
taxpayers, and would federalize the mortgage industry. The MBA issued a statement on Sunday,
commending the actions of the Treasury and Federal Reserve for their efforts to stabilize the mortgage
markets and reassure consumers as to the continued availability of home loans.
Federal Reserve and Regulation Z
On Monday, July 14th, the Federal Reserve approved new rules governing Regulation Z of the Home
Ownership and Equity Protection Act, aimed at preventing abusive lending practices, particularly with
regard to “higher-priced” loans. These rules were proposed at the end of 2007, and are now part of the
Federal Reserve’s official guidance.
For mortgages deemed to be “higher-priced”, lenders must 1) verify income and assets to determine
repayment ability; 2) eliminate prepayment penalties for 2 or 4 years, depending on repayment terms; 3)
require the establishment of escrow accounts for payment of property taxes and homeowner’s insurance.
For all mortgages, regardless of risk classification, the following rules will apply for loans secured by
primary residences: 1) lenders and brokers may not coerce appraisers to misrepresent the value of a home; 2)
loan servicers are prohibited from certain practices, such as pyramiding of late fees; and 3) a Good Faith
Estimate must be provided for any purchase or refinance transaction within 3 days of initial application.
These rules also define explicit practices when advertising mortgages, interest rates, and monthly payments.
Although it was part of the initial proposed rules last year, there is no provision in this guidance regarding
disclosure of yield spread premiums. This topic will likely be considered in other forms in the future.
These provisions will go into effect on October 1, 2009.