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House Bill 3762, filed by Representative Norma Chavez (D-El Paso), would greatly curtail the exploitative practice of predatory mortgage lending, according to the Texas Public Interest Research Group (TexPIRG).
“Predatory mortgage lending is an issue which must be addressed,” said Jeff Brooks, Advocate for TexPIRG. “Every year, some of our most vulnerable citizens are cheated out of millions of dollars by this crooked scam. It’s the responsibility of the legislature to protect Texas citizens from this kind of exploitation, and Representative Chavez’s bill would do an excellent job.”
Predatory mortgage lending takes place when a lender convinces a borrower to use his or her mortgage as collateral on a highly-priced loan containing a number of exploitative provisions. These can include:
1. Excessive fees of which the borrower may not have been informed in the beginning.
2. Prepayment penalties, which punish the borrower if he or she attempts to pay the loan off early.
3. “Yield spread premiums,” which are de facto kickbacks to mortgage loan brokers for steering borrowers to the most exploitative loans.
4. High charges for unnecessary insurance and other financial products which are of no use to the borrower.
House Bill 3762 attempts to deal with these problems by legally establishing that mortgage loan brokers have a fiduciary responsibility to their clients. Such requirements already exist for many professionals. With such provisions, mortgage lenders and mortgage loan brokers would be breaking the law if they push loans which they know are not in the best financial interest of their clients.
“We already require that real estate agents, financial planners and other professionals protect the fiduciary interest of their clients,” Brooks said. “There is no reason for mortgage lenders and mortgage loan brokers not to be subject to the same requirements.”
The bill would bar mortgage loan brokers from using many of the manipulative practices which have been used up to this point. If the broker is aware that another loan would better serve the client, he or she would be required to notify the client of this fact. A broker would also be barred from pushing a loan on an applicant unless there is proof that the applicant has the ability to repay the loan.
In recent months, concern over bad mortgage loans have putting pressure on the stock market and causing economists to fear for the health of the American economy. Passage of the Chavez bill would greatly alleviate such concerns in Texas and solidify the strength of the housing market in the state, while helping to secure financial stability for Texas homeowners.
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