“We are currently witnessing the long-term effects of short-term thinking,” said Congressman Adam Smith. “In order to restore our economic viability and ensure we lay the foundation for long-term sustainable growth we must restore accountability in the housing and financial markets and rebuild our economy in a way that's consistent with our values. These two bills are a step in that direction.”
“Over the last year as the federal government took steps to restore our economy I consistently called for strict accountability and transparency to ensure tax payers are protected,” continued Smith. “I also pushed for measures to address the problems that caused the economic crisis in the first place. These two bills begin to address the underlying problems with our financial system and protect consumers from the irresponsible and fraudulent practices that helped spur the recent wave of foreclosures. I will continue to advocate for additional consumer protections and responsibility in our financial markets.”
The Fraud Enforcement and Recovery Act would authorize funding for the Department of Justice and provide them with the tools necessary to fight potential fraud of TARP economic recovery funds and in mortgage markets. It would create a 10-member “Financial Markets Inquiry Commission” to determine the causes of our current financial crisis, and will analyze such factors as consumer and individual protections, tax treatment of financial products, corporate governance and executive compensation, and lending practices.
The Mortgage Reform and Anti-Predatory Lending Act would outlaw many of the industry practices that marked the subprime leading boom, and it would prevent borrowers from deliberately misstating their income to quality for a loan. This legislation is a crucial step in preventing and combating predatory lending practices.
The bill would ensure that mortgage lenders make loans that benefit the consumer and prohibit them from steering borrowers into the higher cost loans. It would establish a simple standard for all home loans: institutions must ensure that borrowers can repay the loans they are sold. Also, for the first time ever, it would make the secondary mortgage market responsible for complying with these standards when they buy loans and turn them into securities.
The bill also:
- Prevents predatory and abusive lending practices by banning yield spread premiums and other abusive compensation structures that create conflicts of interest or reward originators that “steer” borrowers. The bill would require originators to disclose to consumers the compensation they receive from the transaction.
- Hold creditors responsible for the loans they originate by requiring new federal rules calling for creditors to retain an economic interest in a material portion (at least 5 percent) of the credit risk of each loan that the creditor transfers, sells, or conveys to a third party.
- Protect tenants who rent homes that go into foreclosure by requiring that they receive proper notification and are given time to relocate before the home they rent is foreclosed.