Real Estate NewsConsumer Groups Ask Congress Keep Borrower-Protection Laws
Acting to prevent the mortgage industry from "gutting" the only consumer protection laws governing home loan transactions, 13 consumer and community groups have asked the leadership of the Senate Banking Committee to go slowly when it addresses the issue later this year.
The "massive modifications" of the Truth in Lending Act (TIL) and the Real Estate Settlement Procedures Act (RESPA) that are being proposed "under the guise of reform...would reduce consumer and civil rights safeguards without providing any additional information or protections," the organizations said in a letter to Chairman Phil Gramm, R-Texas, and ranking minority member Paul Sarbanes, D-Md.
Revisions to TILA and RESPA have been on the table on Capital Hill for years. But with a new regime in the White House, the housing finance business is hoping significant progress will finally be made.
TILA requires lenders to disclose their fees and charges, and to calculate an annual percentage rate so borrowers can more easily compare the total cost of one loan vs. another. RESPA is an anti-kickback law that makes it illegal for lenders to pay for so-called "naked referrals," sending business to a lender for a fee and without other work.
Basically, lenders hope to replace the two laws, which they maintain are outmoded and unworkable, with a more meaningful, easily understandable system in which all loan costs are bundled into a single guaranteed amount. And they hope to make headway by tying their effort to federal lawmakers" desire to curb abusive lending practices, arguing that the best way to stop scam artists from fleecing unsuspecting borrowers is to make it easier to compare loan costs.
But without TILA and RESPA, the 13 groups said, there would be no federal or state laws protecting consumers in their mortgage transactions. The two laws may not be perfect, said the groups, which include the influential Consumers Union and Consumers Federation of America, but they are all we have.
"There are no federal or state laws that govern the maximum rates or fees that lenders charge," they pointed out. And states "cannot set limits on the terms lenders impose.
"Other than prohibitions against discrimination in the granting of credit, (TILA and RESPA) are generally the only laws on a federal or state level that require consumer protections in the making of home loans. These two laws are thus the only significant way in which Congress has ensured that the needs of home owners are somewhat protected and balanced against the interests of the lending industry."
The groups also argued that the failures in the current system which allow predatory lenders to get away with, among other things, packing their loans with excessive fees, lies not in the basic framework of TILA and RESPA but in the "lack of substantive regulation in home lending transactions."
As the 13 organizations see it, lawmakers face "two distinct but related" issues: * If TILA and RESPA are revised, changes must provide for more safeguards and enforcement mechanisms, not fewer.
Preventing abusive lending practices should not be used as an excuse for "gutting" the basic laws governing home loans, they say.
Besides CU and CFA, the groups signing the letter to Sens. Gramm and Sarbanes and other committee members include: ACORN, the Coalition for Responsible Lending, Leadership Conference on Civil Rights, National Community Reinvestment Coalition, National People"s Action, U.S. Public Interest Research Group. Center for Community Change, National Association of Consumer Advocates, National Consumer Law Center, Self-Help Credit Union and the International Union of Auto Workers.
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