Potential Predatory Mortgage Lending Practices Reduction Act
Abusive practices in the mortgage lending market have led to legislation prohibiting such mistreatment. Predatory mortgage lending practices are mostly aimed at loan applicants who are likely to be less informed. Such applicants usually include those in the subprime loan market.
Subprime mortgage loans are typically made to borrowers with a high credit risk. Predatory lending can occur with these borrowers through the inclusion of deceptively and unfairly inflated terms and fees. In response, in April of 2003, a House representative proposed the Predatory Mortgage Lending Practices Reduction Act.
Objectives of the Proposed Act
If passed, the Predatory Mortgage Lending Practices Reduction Act will amend the Real Estate Settlement Procedures Act (RESPA) by requiring that all mortgage lenders and mortgage brokers be certified in subprime lending by the Department of Housing and Urban Development in order to transact business in connection with subprime mortgage loans.
The proposed Act seeks to achieve the following three main goals:
- Create subprime certification, including a written examination on several federal laws related to lending and housing
- Set up minimum practice standards for providing information to consumers
- Create civil penalties on an escalating scale for violating federal laws pertaining to predatory lending
Additionally, the Act will provide $1 million to fund the certification program, and another $1 million will be allocated for community development programs to increase consumer awareness.