Dodd Introduces Senate Mortgage Reform Bill
As speculated in numerous media reports earlier in the week, Senator Chris Dodd (D-CT) today introduced legislation targeting reform in key mortgage industry practices. Among other provisions, the bill would 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. The Homeownership Preservation and Protection Act would also prohibit prepayment penalties and Yield Spread Premiums (YSPs) on nontraditional mortgages, similar to legislation passed last month by the House of Representatives. Dodd's proposal goes further than the House bill, however, and would 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 -- and also would exclude pre-empting state laws. Numerous consumer advocates immediately provided their support for the proposed legislation; the Mortgage Bankers Association had not yet issued a statement on the Senate bill at the time this story was published. American Banker reported Wednesday that it is unclear if Dodd's bill -- which has broad support among Democrats and was cosponsored by 13 other Democratic Senators -- will generate bipartisan support.