Bills
| 3.23.22

Creating a Safe Harbor for Mortgage Lenders that Keep Loans on Their Balance Sheets (H.R. 1210)

Do you support or oppose this bill?

What is H.R. 1210?

(Updated August 1, 2017)

This bill would create a safe harbor for lenders, such as banks and credit unions, that hold residential mortgages on their balance sheet after origination and all of their prepayment penalties comply with certain limitations. The residential mortgages would not meet the definition of a qualified mortgage, meaning that:

  • The borrower’s debt to income ratio exceeds 43 percent;

  • The total principal of the loan could grow each year, which is known as negative amortization;

  • The borrower could be allowed to pay only the interest on a mortgage;

  • The borrower has limited documentation.

The safe harbor would shield lenders from lawsuits related to failure to comply with requirements related to residential mortgages as long as they meet the above criteria.

Mortgage originators would also be protected by the safe harbor for steering a consumer to a residential mortgage loan if:

  • The lender is a depository institution and has informed the mortgage originator that it intends to hold the loan on its balance sheet for the life of the loan;

  • The mortgage originator informs the consumer that the creditor intends to do so.

Argument in favor

Protecting mortgage lenders from lawsuits under circumstances where they hold the mortgage on their books for the life of the loan rather than selling it will make it easier for mortgage loans to be originated.

Argument opposed

Mortgage lenders should be able to be sued even if they’re holding the loans they make on their own books rather than selling them.

Impact

People applying for mortgages, mortgage originators and financial institutions, and the federal government.

Cost of H.R. 1210

The CBO estimates that this bill’s impact on spending would be insignificant.

Additional Info

In-Depth: Sponsoring Rep. Andy Barr (R-KY) described the purpose of this bill in his introductory press release:

“The aim of this legislation is simple: banks and credit unions should be given more discretion to originate mortgages as long as they agree to retain the risk of that loan. This reform would promote responsible lending practices that would help more Kentucky homebuyers qualify for a mortgage, and protect hardworking taxpayers from future bailouts.”

This bill has 54 cosponsors in the House, and was passed by the House Financial Services Committee by a 38-18 vote.

Media:

Summary by Eric Revell
(Photo Credit: Flickr user CJS*64 A man with a camera)