A bill designed to address abuses in the lending market would leave consumers worse off than if Congress did nothing at all, a group of national and local consumer and poverty law organizations told lawmakers yesterday.

The group is urging lawmakers to defeat H.R. 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007 when it comes up for a vote in the U.S. House of Representatives. The measure cleared the Financial Services Committee earlier this week.

In a letter sent to the Hill, the organizations decry the bills insulation of Wall Street and the removal of key state protections that borrowers use to protect their homes.

The lending industry isn't happy with the bill either. The Mortgage Bankers Association (MBA) and the National Association of Mortgage Brokers (NAMB) have criticized the measure for proposing regulations that they say will end up hurting borrowers on the front end by eliminating yield spread premiums that help homeowners avoid higher costs during loan origination.

Consumer advocates say the bill is too slanted towards big-money interests.

At a moment when the economy is being rocked by the subprime mortgage crisis and when predatory loans are sending millions of Americans into foreclosure, it is shocking that the House of Representatives is protecting Wall Street, instead of the consumers who are at risk of losing their homes, said Joan Claybrook, president of Public Citizen.

This bill represents a net loss to consumers because it replaces strong state protections with a weak, untested federal scheme, said Alys Cohen, staff attorney with the National Consumer Law Center. We appreciate the authors efforts to combat predatory lending, but compromises made to attract wider support make the bill an empty promise.

The bill is designed to address serious abuses in the lending market, including the making of loans that homeowners cannot afford to repay; prepayment penalties that lock borrowers into high-cost loans; binding mandatory arbitration clauses that deprive homeowners of access to court; and other protections against high-cost loans.

State pre-emption

But because it combines weak federal remedies with pre-emption of existing state-law remedies, H.R. 3915 would actually harm consumers, the groups said. They charged it lacks meaningful remedies that borrowers need to save their homes.

Worse still, they said, the bill contains a state-law pre-emption provision, which would entirely undercut the value of the bills protections. The bill would eliminate homeowners ability to raise state-law claims -- claims they may already bring under current law -- against the actual owners of their loans.

If homeowners cannot sue the owners of the loans, they will have no relief available at all because, in most cases, the original issuers of the mortgage have sold the loan and, in many cases, have gone bankrupt or are otherwise out of the picture.

We cannot support a bill that eliminates strong state-law remedies for the victims of predatory mortgage abuses, said Ed Mierzwinski, consumer program director of U.S. PIRG. Consumers need these protections now more than and ever, and intentionally or not, this federal law creates rights without remedies.


In the letter sent to Reps. Barney Frank (D-Mass.) and Spencer Bachus (R-Ala.), chairman and ranking member of the House Financial Services Committee respectively, the groups noted that the bill creates multiple hoops through which the homeowner has to jump to obtain any redress.

The remedies in the bill are limited to borrowers already in foreclosure and safe harbors in the bill provide little or no incentive for the market to change.

While we commend the bills sponsors for seeking to address serious abuses in the mortgage industry, its clear that lawmakers are not listening to consumers and the groups they trust to represent their interests, said Linda Sherry, director of national priorities at Consumer Action.

Congress has ignored suggestions for a stronger bill that contains real remedies to protect consumers, while giving in to demands from the industry to weaken the bill.

Added Ira Rheingold, executive director of the National Association of Consumer Advocates, We hope that if the bill passes the House, the Senate will be able to retain the bills strengths while ensuring that it has real remedies that give life to the protections. Communities are being devastated by lending abuses. The market needs to be changed now.

While we appreciate the good effort in Congress devoted to addressing the terrible problem of predatory lending, this bill will pre-empt much stronger state laws, like those in North Carolina, said Al Ripley, director of the Consumer Action Network at the North Carolina Justice Center. Unfortunately, homeowners in North Carolina and in the rest of the nation will find themselves with fewer protections from predatory mortgages if the bill in its current form passes.