Democrats introduced on Monday a bill that would tighten mortgage lending standards to help avoid the mortgage meltdown of foreclosures and defaults that have swept the housing market. But the bill has immediately met with opposition. Lending brokers, however, expressed problems with the bill, which was introduced by Rep. Barney Frank (D-Mass.). Their main concern is the provision prohibiting the yield spread premium, the Los Angeles Times reported. According to the Times, the bill would: -Establish a federal standard for home loans, requiring that mortgages be approved only for borrowers who have a “reasonable ability” to repay. * Prohibit financial incentives that encourage lenders to steer borrowers into more costly loans than those they qualify for, including the bonuses known as “yield spread premiums” that lenders pay to brokers. * Restrict costly prepayment penalties charged to borrowers who wish to close out their loans, typically to refinance on cheaper terms. Such penalties would have to expire three months before mortgage interest is scheduled to reset. Prepayment penalties would be banned altogether for high-cost, sub-prime loans. * Require licensing and registration for brokers and bank loan officers. Consumer advocates have called for such rules to protect borrowers from unscrupulous lenders that may move from state to state. * Establish federal minimum requirements while encouraging states to impose tougher rules. Many lenders prefer a new federal law setting maximum standards that states would not be allowed to exceed. Federal rule-making and enforcement duties would go to such agencies as the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Trade Commission.
