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Recent Legislative Developments

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					Updated 4/18/08
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                               Recent Legislative Developments
Congress is currently considering a variety of proposals to stimulate the housing industry
and reduce foreclosures, as well as proposals to further protect borrowers from predatory
lending practices. The current and recent legislative initiatives include the following.
Stimulus Proposals:
In April, the Senate voted 84-12 to pass a measure providing tax credits of up to $7,000
over two years to the buyers of foreclosed homes, tax relief in the form of extended “net
operating loss carrybacks” for homebuilders and other businesses experiencing losses,
$4 billion in grants to redevelop abandoned and foreclosed homes, and pre-foreclosure
counseling for as many as 3,000 homebuyers annually.1 The provision, originally an
amendment to the New Direction for Energy Independence, National Security, and
Consumer Protection Act, also includes plans to improve technology and services at the
Federal Housing Administration (FHA), and creates $10 billion in housing bonds
designed to help homeowners refinance.2
The Bill has come under fire both because of what it includes and what it omits. Critics
have targeted the special tax breaks for businesses and argue that the measure’s tax
credits for buyers of foreclosed properties will encourage lenders to place more homes in
foreclosure and further lower the value of homes not in foreclosure.3 At the same time,
consumer advocates have criticized the elimination of a provision that would have
allowed bankruptcy judges to reduce interest rates and the remaining principal for
bankrupt borrowers of subprime mortgage loans. These advocates point out that the
Senate Bill is generous in its aid to floundering businesses, but does little to help
homeowners facing foreclosure.4
The House counterpart to the Senate Bill offers a different approach, and features
temporary tax relief of up to $7,500 for first-time homebuyers and additional tax credits
for investors in low-income rental housing.5 The House Bill, the Housing Assistance Tax
Act of 2008, passed the Ways and Means Committee on April 9 by a vote of 35-5.6 This
Bill may eventually be paired with a proposal by Rep. Barney Frank enabling the FHA to
provide $300 billion in guarantees to aid homeowners in refinancing mortgages, as well
as designate $10 billion in redevelopment grants and loans for foreclosed property.7 The
scope of Frank’s plan contrasts with a White House proposal permitting the FHA to shift




1
  H.R. 3221, 110th Cong. §§ 128, 301, 25E, 601 (as passed by Senate, April 10, 2008); see also
http://www.govtrack.us/congress/bill.xpd?bill=h110-3221.
2
  H.R. 3221, 110th Cong. §§ 125, 602; see also Associated Press, Senate passes foreclosure bill,
CNNMoney.com, April 10, 2008,
http://money.cnn.com/2008/04/10/news/economy/senate_foreclosure.ap/index.htm?cnn=yes.
3
  Associated Press, supra note 2.
4
  Associated Press, Bankruptcy aid dropped from Senate plan, MSNBC.com, April 3, 2008,
http://www.msnbc.msn.com/id/23944893/.
5
  H.R. 5720, 110th Cong. §§ 101, 36 (as passed by Ways and Means Committee, April 9, 2008); see also
Associated Press, supra note 2.
6
  Press Release, House Committee on Ways and Means, Ways and Means Passes Bipartisan Housing Tax
Relief (April 9, 2008) available at http://waysandmeans.house.gov/News.asp?FormMode=release&ID=636.
7
  House Committee on Financial Services, Press Release, Frank Announces New Economic, Mortgage, and
Housing Rescue Proposal (March 13, 2008), available at http://financialservices.house.gov/FHA.html; see also
Associated Press, supra note 2.




_______________________________________________________________________________________________________________
    Carrington, Coleman, Sloman & Blumenthal, L.L.P. • 901 Main Street, Suite 5500 • Dallas, Texas 75202 • www.ccsb.com
Updated 4/18/08
__________________________________________________________________

the risk of default on qualifying loans to the government if lenders agree to write down a
percentage of a mortgage’s principal based on a home’s existing value.8
Truth in Lending Act Amendments:
Other particularly visible legislative proposals include amendments to the Truth in
Lending Act. One version of such amendments has passed the House, while another
has been referred to a Senate committee.
The House Proposal:
The Mortgage Reform and Anti-Predatory Lending Act of 2007, which passed the House
in November by a 291-127 vote, would amend the Truth in Lending Act to reform
residential lending practices and regulate mortgage loan originators.9 Specifically, the Bill
would:
     •     Require all mortgage loan originators to be nationally registered and licensed
           under either state or federal law. A qualifying state licensing law would impose
           net worth and educational requirements on originators, and create procedures for
           supervising them. The Department of Housing and Urban Development (HUD)
           would be responsible for establishing national licensing standards for originators
           who were not licensed by a state or affiliated with a depository institution.10
     •     Impose a duty of care on mortgage loan originators requiring them to “diligently
           work” to present consumers with a range of lending options, as well as to
           disclose the costs of each option, the additional costs of the originator’s service,
           and any conflicts of interest. The duty of care provision states that it does not
           itself create a fiduciary relationship between an originator and consumer.11
     •     Mandate the creation of regulations that prohibit mortgage loan originators from
           giving consumers incentives that steer them toward certain mortgage loans not in
           the consumers’ best interests.12
     •     Require creditors to make residential mortgage loans only after “a reasonable
           and good faith determination based on verified and documented information that,
           at the time the loan is consummated, the consumer has a reasonable ability to
           repay the loan.” A creditor would be prohibited from refinancing a loan unless
           the creditor reasonably and in good faith determined that the refinancing would
           benefit the consumer.13
     •     Permit civil actions against creditors and their assignees, such as loan
           securitizers, for rescission of loans and additional costs incurred by consumers in
           obtaining rescission, including attorneys’ fees. The assignee and creditor would
           have 90 days to cure any violations by modifying or refinancing loans. Civil
           actions could not be pursued against investors in a pool of mortgages.14


8
  Associated Press, supra note 2; John D. McKinnon and Damian Paletta, Bush to Expand Help on Mortgages,
The Wall Street Journal, April 9, 2008, at 1.
9
  H.R. 3915, 110th Congress (as passed by House, Nov. 15, 2007);
http://www.govtrack.us/congress/bill.xpd?bill=h110-3915.
10
   H.R. 3915 §§ 101, 104.
11
   Id. at § 102.
12
   Id. at § 103.
13
   Id. at §§ 201, 202.
14
   Id. at § 204.




_______________________________________________________________________________________________________________
    Carrington, Coleman, Sloman & Blumenthal, L.L.P. • 901 Main Street, Suite 5500 • Dallas, Texas 75202 • www.ccsb.com
Updated 4/18/08
__________________________________________________________________

      •     Prohibit certain predatory practices for high-cost mortgages (such as first
            mortgages with APRs more than 8 percentage points above the yield on
            comparable Treasury securities) including balloon payments, lending without
            regard to a consumer’s ability to repay a debt, imposition of excessively high late
            fees and acceleration of a debt.15
      •     Create an Office of Housing Counseling, and require HUD to provide financial
            assistance to counseling programs and produce materials to aid consumers in
            understanding the costs associated with settlement procedures. The Bill would
            appropriate $45 million annually for the next four years for counseling services.16
      •     Require a standard form presenting good faith estimates of the maximum amount
            of loan payments, the interest rate, the maximum interest rate, the estimated
            monthly payment, prepayment penalties and settlement charges.17
The Senate Proposal:
H.R. 3915 has been referred to the Senate’s Committee on Banking, Housing, and Urban
Affairs.18 In December, Senator Christopher Dodd introduced a similar proposal, which
was referred to the same committee. Dodd’s Home Ownership Preservation and
Protection Act of 2007 includes several provisions absent from the House proposal.19 If
enacted, it would:
      •     Prohibit yield spread premiums, or the receipt of additional compensation for
            originating a loan that is more costly than the one for which a consumer
            qualifies.20
      •     Create a standard of “good faith and fair dealing” for appraisal. Appraisers would
            be prohibited from having an interest in the property appraised and from
            receiving incentives to aim for a target appraisal. A lender or loan servicer would
            have to provide free appraisal reports to consumers.21
      •     Potentially impose civil liability on loan assignees for damages that could have
            been obtained from an original creditor. Investors who purchased pools of
            mortgages would not be relieved of liability.22
Mortgage Forgiveness Debt Relief Act of 2007:
The Mortgage Forgiveness Debt Relief Act was signed by President Bush in December
after passing the House by a vote of 386-27 and the Senate by unanimous consent.23
The Bill excludes forgiven debt on a principal residence, which would normally be
included in income, from taxation. Homeowners will, however, later need to account for
the amount of discharged indebtedness when they pay capital gains tax upon selling their
homes.24


15
   Id. at §§ 301, 302, 303.
16
   Id. at §§ 402, 404, 408.
17
   Id. at § 501.
18
   http://www.govtrack.us/congress/bill.xpd?bill=h110-3915.
19
   S. 2452, 110th Cong. (as introduced Dec. 12, 2007).
20
   Id. at §§ 102, 201.
21
   Id. at § 401.
22
   Id. at § 704.
23
   http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.
24
   H.R. 3648, 110th Congress § 2 (2008) (enacted).




_______________________________________________________________________________________________________________
     Carrington, Coleman, Sloman & Blumenthal, L.L.P. • 901 Main Street, Suite 5500 • Dallas, Texas 75202 • www.ccsb.com

				
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