As a part of a comprehensive strategy he says will “protect, preserve and promote the American dream of homeownership,” U.S. Senator Christopher Dodd yesterday introduced legislation to help put an end to the abusive and predatory lending practices that have sent nearly a million Americans into foreclosure and put just as many more in danger of losing their homes.

The Homeownership Preservation and Protection Act of 2007, which is cosponsored by no less than a dozen of Dodd’s counterparts in the Senate, enjoys support from the National Community Reinvestment Coalition (NCRC), the National Association for the Advancement of Colored People (NAACP), the American Association of Retired Persons (AARP), and the Center for Responsible Lending, among others. From the way the Bill reads today, the Homeownership Preservation and Protection Act of 2007 will:

1. Establish new protections for all borrowers. It will prohibit brokers from steering prime borrowers to more expensive subprime loans, create a fiduciary duty for mortgage brokers towards borrowers, and provide for a duty of good faith and fair dealing toward borrowers for all lenders.
2. Establish new protections for subprime borrowers and borrowers who get nontraditional mortgages. It will require a real analysis of the borrowers’ ability to repay the loan. The bill prohibits prepayment penalties and Yield Spread Premiums (YSPs) on these loans, and requires that these loans provide a net tangible benefit to the borrower.
3. Provide strong remedies to make sure these standards are met. It will allow state attorneys general enforce the provisions of the law, and does not preempt state law.
4. Provide for limited liability for holders of a mortgage made in violation of law, whether it is the original lender or a subsequent investment trust. Unlike current law, which puts the burden on the borrower to find the party responsible for causing the harm, the legislation allows the borrower to go directly to the current mortgage holder for a cure.

   The U.S. House of Representatives has already passed a similar measure. H.R. 3915, which was approved by House members on a part-line vote on November 15, essentially calls for the following:

   1. Prohibits steering incentives to mortgage originators, including incentive compensation and any yield spread premium based on, or varying with, the terms of a residential mortgage loan.
   2. Prohibits mortgage originators from steering any consumer to a residential mortgage loan that is not in the consumer’s interest (loans with predatory characteristics).
   3. Sets forth licensing and registration requirements for mortgage originators.
   4. Requires creditors to determine, based on verified and documented information, that a consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance, and assessments.
   5. Prohibits creditors from extending credit for residential mortgage loans that involve refinancing of a prior residential mortgage loan unless the creditor determines that refinancing provides a net tangible benefit to the consumer.
   6. Sets forth defenses to foreclosure.
   7. Revises requirements governing prepayment penalties (it essentially prohibits lending without due regard to repayment ability).

   Clearly, there are differences in both pieces of legislation. Inman News reports Dodd’s bill “would require loan servicers to implement loss mitigation strategies before initiating foreclosure proceedings against borrowers,” and would “require lenders to follow existing federal guidelines for subprime and nontraditional mortgage loans, and lower the threshold for loans to fall under even stricter requirements for high cost mortgages as defined by the Home Ownership Equity Protection Act, or HOEPA.”

   But like legislation approved by the House on Nov. 15, Dodd’s bill would limit the “assignee liability” of investors who buy securities backed by mortgage loans, protecting them from class-action suits by borrowers, Inman reports.

   On the House side, H.R. 3915, creates a national registration system for mortgage originators and requires background checks, fingerprinting, education and testing; whereas Dodd’s the bill introduced by Dodd in the Senate includes no such provision, Inman also reported.

   Inman’s analysis of Dodd’s legislation also reveals the following: “Absent from both bills is language advocated by mortgage lenders and the Bush administration that would create uniform national standards for mortgage originators preempting state laws, in order to eliminate what critics say is a patchwork of regulations that varies from state to state. Without a uniform standard, states would be allowed to adopt stricter rules for lenders not regulated at the federal level.”

   Kieran Quinn, Chairman of the Mortgage Bankers Association (MBA) expressed concerns yesterday about Dod’s proposal. In a prepared statement, she said:

   “The introduction of this bill is an important development as it will jumpstart the debate in the Senate over how to prevent a reoccurrence of the current troubles facing the mortgage market. We are still reviewing the specific language in the bill, but there are several provisions that concern us deeply. Senator Dodd’s bill does not provide a uniform national standard to protect consumers from predatory lending, a step we feel is necessary to ensure a smooth and efficient marketplace. Further, we are troubled by the bill’s ‘duty of care’ and assignee liability requirements.

   For its part, the NCRC shot back with a prepared statement of its own. John Taylor, NCRC President & CEO:

   We support Senator Dodd’s bill aimed at improving the regulation of the housing market to ensure that working families are able to secure and sustain homeownership. If passed in its present form, Senator Dodd’s bill will create strong accountability measures among brokers, lenders and Wall Street investors and will protect American families from unfair and deceptive lending practices.