US House Democrats to offer predatory lending bill

By John Poirier

WASHINGTON, July 17 (Reuters) - Several Democrats on Wednesday will introduce a bill aimed at protecting consumers by limiting finance charges for certain home mortgages, banning prepayment penalties and verifying a borrower's ability to repay a loan.

Rep. Keith Ellison of Minnesota, a member of the House Financial Services Committee, said the legislation takes a tough stand against predatory lending by state-regulated mortgage brokers and is modeled after a new Minnesota law.

"They are the protections that we believe the rest of the nation deserves as well," Ellison said in a statement.

The bill comes less than a week after Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services panel, offered legislation that would set up a national registry of mortgage brokers and other loan sellers.

Among other things, Bachus' bill would require loan originators to submit to a criminal background check and fingerprinting, and would ban loan originators recently convicted of fraud from the registry.

U.S. lawmakers and consumer groups have criticized federal banking regulatory agencies for being slow to protect consumers from predatory lending practices and fraud involving home loans and credit cards.

Rep. Barney Frank, the Massachusetts Democrat who heads the Financial Services panel, wants to pass legislation by the end of 2007 to deal with the subprime crisis and predatory lending. He is expected to introduce his own bill in coming months.

The outlook for legislation is less clear in the Senate.

Christopher Dodd, chairman of the Senate Banking Committee, has expressed disappointment with the Federal Reserve for failing to act when the agency began seeing problems three years ago in the subprime mortgage market. Subprime mortgages are made to consumers with a poor credit history.

Dodd, a Democrat from Connecticut and a U.S. presidential hopeful, said he prefers to prod regulators to use their existing powers rather than addressing the issue with new legislation.

Ellison's new bill would limit finance charges to no more than 5 percent of the principal amount of the home mortgage and prohibit loans without documenting a consumer's income.

It also seeks to minimize payment shocks for borrowers with adjustable rate mortgages. Another provision would ban practices that create fees for the originator at the expense of the borrower, such as pushing a borrower who qualifies for a lower rate loan to a higher rate.

The new House bill is co-sponsored by Betty McCollum, Tim Walz and James Oberstar of Minnesota; William Lacy Clay and Emanuel Cleaver of Missouri and Lynn Woolsey of California. All are Democrats.

"We're hoping to work with the current House leaders on this issue to get some of our bill into the final version out of the committee," an aide to Ellison said.