House Judiciary Committee passes watered down mortgage reform bill

ATLANTA – The House Judiciary Committee passed SB 57 Thursday after adopting a number of amendments that weakened core provisions of the legislation. The bill is the only attempt that the legislature has moved forward that addresses the careless underwriting practices that led to the mortgage lending collapse of the past several years.

“We’re disappointed that the bill has been watered down,” said Danny Orrock, Deputy Director of Georgia Watch. “Under the Judiciary substitute, an important provision requiring creditors to verify that a borrower can repay a subprime loan was weakened. This is exactly the sort of mentality that caused the subprime meltdown.”

The Judiciary committee included language that would protect creditors from being held liable for ignoring the risk of foreclosure to a borrower so long as the total monthly cost to service the debt is less than 50 percent of the borrower’s gross monthly income.

Additionally, a section of the bill that would have banned yield spread premiums (YSPs) on subprime and FHA loans was removed. It was replaced with language that allows YSPs to be paid as long the kickback is reflected in a good faith estimate to the borrower. But such disclosure is convoluted at best, as it allows YSPs to be lumped in with other closing costs and appear as both a credit and a charge to the borrower.

“The Senate banned the kickbacks on subprime and FHA loans to mortgage brokers known as yield spread premiums,” Orrock said. “But the language on yield spread premiums from the Judiciary Committee is a loophole that allows mortgage brokers to play games with disclosures and continue to generate kickbacks for steering borrowers towards unsuitable loans.”

SB 57 now sits in the House Rules Committee, which will determine when it goes to the floor and the terms of the debate.