Major Banks At it Again, Fighting Against “Truth in Mortgage Lending” Legislation Which Would Decrease Foreclosures!

November 25, 2007 By Matthew Paulson

We recently reported that some of the major US banks including Bank of America, Capital One, Chase and Discover were actively flaunting US Bankruptcy law, and now they’re trying to put the screws to consumers again by opposing “Truth in Mortgage Lending” legislation which is currently working its way through congress.

The US House recently voted to enact the “Mortgage Reform and Anti-Predatory Lending” act which would do a number of things to make sure that consumers know what they’re getting into when they take out a mortgage and ensure that they can only take out loans that they can reasonably afford to pay back.

The bi-partisan legislation passed on a 291-127 vote and would establish a federal licensing and registration system for mortgage lenders. In addition it would establish a new department in HUD called the office of “Housing Counseling” which would assist consumers in avoiding a foreclosure. The legislation would also make it illegal for banks to give loans to consumers that there’s no reasonable way for the consumer to repay and prevent lenders from pushing predatory loans on to consumers. The legislation will now move onto the senate and then the desk of the president.

Banks and other mortgage lenders have been fighting tooth and nail to prevent this legislation from being passed. They have absolutely refused to work with congress in coming up with some sort of reasonable compromise and have nothing to say on the legislation but “No Way, No How!” Major banks’ lobbies spent several weeks trying to derail the legislation while it was in committee and are now trying to prevent it from passing in the US Senate.

These large financial institutions have shown that they have not policed themselves properly. Banks which lend mortgages to people believe they have no responsibility to sell you the product that makes the most financial sense, but rather the one that makes them the most money. They have put people into mortgages which they simply cannot afford to repay by qualifying them on low teaser rates rather than what they would actually be repaying over the long haul.

Banks hate this legislation because they do not want to have what’s called as “fiduciary responsibility” to their customers, meaning that they would have to give them the product which is the best deal for the consumer, not the banks pocketbook. They’re also opposed to the bill because it would make it so that people had to qualify based on the actual payment, not the teaser rate. Mortgage companies are unhappy with the legislation because it would require them to spell out in plain English what the true cost of the mortgage is on a monthly basis as well as the costs and fees of the loan to the consumer.

By working against this legislation, banks are showing that they have little concern as to what’s in the best interest of the consumer and are rather only concerned about increasing the number of mortgages they originate and their short term quarterly profits.