If you have not heard of H.R. 3915 — The Mortgage Reform and Anti-Predatory Lending Act of 2007 you need to watch this bill with care. It represents a huge advance in borrower protection, yet when it is debated tomorrow in a closed session of the House Financial Services committee it will exclude reverse mortgage borrowers at almost every turn.

According to the legislation, “the term `residential mortgage loan’ means any consumer credit transaction that is secured by a mortgage or deed of trust on a dwelling or on residential real property that includes a dwelling, other than a consumer credit transaction under an open end credit plan or a reverse mortgage.”

Single-premium insurance is generally prohibited under the bill. Such insurance requires borrowers to pay for coverage up front — perhaps for the entire 30-year term of the mortgage — but there is no rebate if the loan is repaid by selling the property or refinancing the loan after a few years.

The single-premium protection program, of course, does not apply to reverse mortgage borrowers under the bill:

“No creditor may finance, directly or indirectly, in connection with any residential mortgage loan or with any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer (other than a reverse mortgage), any credit life, credit disability, credit unemployment or credit property insurance, or any other accident, loss-of-income, life or health insurance, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract, except that insurance premiums or debt cancellation or suspension fees calculated and paid in full on a monthly basis shall not be considered financed by the creditor.”

The proposed legislation generally bans binding arbitration because the terms of such non-judicial arrangements can be one-sided unless properly written. The exception to the ban? You guessed it:

“No residential mortgage loan and no extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer (other than a reverse mortgage) may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”

H.R. 3915 specifically allows borrowers to sue lenders for mis-deeds — except for reverse mortgage borrowers:

“No provision of any residential mortgage loan or of any extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer (other than a reverse mortgage), and no other agreement between the consumer and the creditor, shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States, or any other court of competent jurisdiction, pursuant to section 130 or any other provision of law, for damages or other relief in connection with any alleged violation of this section, any other provision of this title, or any other Federal law.”

If a lender makes a so-called “high cost” loan then certain disclosures are required under the Home Ownership and Equity Protection Act — except for reverse mortgage borrowers. The screw job continues under the proposed new language:

“The term `high-cost mortgage’, and a mortgage referred to in this subsection, means a consumer credit transaction that is secured by the consumer’s principal dwelling, other than a reverse mortgage transaction….”

Wouldn’t it be great if all borrowers had extensive loan disclosures before making an enormous financial commitment? That sure makes sense — except for reverse mortgage borrowers:

“No creditor may extend credit to a first-time borrower in connection with a consumer credit transaction under an open or closed end consumer credit plan secured by a dwelling or residential real property that includes a dwelling, other than a reverse mortgage, that provides or permits a payment plan that may, at any time over the term of the extension of credit, result in negative amortization unless, before such transaction is consummated–

“1) the creditor provides the consumer with a statement that–

“(A) the pending transaction will or may, as the case may be, result in negative amortization;

“(B) describes negative amortization in such manner as the Federal banking agencies shall prescribe;

“(C) negative amortization increases the outstanding principal balance of the account; and

“(D) negative amortization reduces the consumer’s equity in the real property; and

“(2) the consumer provides the creditor with sufficient documentation to demonstrate that the consumer received homeownership counseling from organizations or counselors certified by the Secretary of Housing and Urban Development as competent to provide such counseling.”

Why is it that reverse mortgage borrowers are excluded from the excellent protections otherwise found in this bill? Who speaks for reverse mortgage borrowers? Does not anyone object to the screwing of borrowers just because they happen to finance with a reverse mortgage?

This entry was posted on Monday, November 5th, 2007 at 7:06 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.