Mortgage Reform and Predatory Lending (§§ 1402, 1403, 1414, 1421, & 1463)

In a statute entitled the Mortgage Reform and Anti-Predatory Lending Act of 2010, the legislation sets minimum underwriting standards for mortgages by requiring lenders to verify that consumers have a reasonable ability to repay at the time the mortgage is consummated. Certain high-quality, low-cost loans (defined as “qualified mortgages”) are presumed to meet this standard. Underwriting is also addressed by appraisal reforms. The legislation prohibits lenders from making a higher-cost mortgage without first obtaining a written appraisal. It establishes enforceable federal appraisal independence standards that prohibit the parties involved in a real estate transaction from influencing the independent judgment of an appraiser through collusion, coercion, and bribery. Federal oversight of the state appraisal regulatory system is also enhanced.

Additional new mortgage-related consumer protections include limits on financial incentives (including payments known as “yield spread premiums”) that consumer advocates believe encourage mortgage brokers and other mortgage originators to steer consumers to higher-cost mortgages. New prohibitions are also established on single-premium credit insurance, mandatory arbitration clauses, and prepayment penalties for adjustable-rate mortgages
and mortgages that do not meet the definition of a qualified mortgage.

The legislation enhances and expands the scope of consumer protections for high-cost loans under the Home Ownership and Equity Protection Act (HOEPA) and requires additional disclosures to consumers. The HOEPA provisions prohibit:

  • the financing of points and fees
  • excessive fees for payoff information, modifications, or late payments
  • practices viewed as increasing the risk of foreclosure (such as balloon payments, encouraging a borrower to default, and call provisions)