Dodd-Frank, Title XIV, the Mortgage Reform and Anti-Predatory Lending Act of 2010 address many of the misaligned market and profit incentives associated with the subprime mortgage origination and securitization process. The Mortgage Reform and Anti-Predatory Lending Act forbid mortgage lenders from steering a borrower into a mortgage that has predatory characteristics or engaging in abusive or unfair lending practices that promote disparities.
Mortgage steering gained international attention when New York Times business columnist and reporter Gretchen Mortgenson documented a pattern and practice of high cost mortgage steering within Countrywide Financial Corporation. In large measure the allegations are similar to those consumer groups were claiming for years, but now the accusations of high cost mortgage steering were published on the highly regarded front page of the business section of the New York Times.
Mortgage originators are required to meet certain qualifications in accordance with applicable law, including the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F. E. Act) and include a unique identification number issued by the Nationwide Mortgage Licensing System and Registry on all loan documents. Dodd-Frank prohibits the establishment of usury limits, but indirectly regulates interest rates by imposing strict disclosure requirements. The Mortgage Reform Act significantly revises both the Truth in Lending Act of 1968 (TILA) and the Home Ownership Equity Protection Act (HOEPA). Revisions to TILA forbids mortgage lenders from making any residential mortgage, not just those above the HOEPA threshold, without having made a reasonable good faith determination that, at the time of mortgage origination, the borrower has a reasonable ability to repay the loan. The Mortgage Reform Act definition of “high-cost mortgage” expanded coverage to a broader range of loans by lowering the reference interest rate, as well as the point and fees trigger, and adding a third trigger covering prepayment penalties.
Next Page: Bureau of Consumer Financial Protection