The Mortgage Reform and Anti-Predatory Lending Act, which passed the House Thursday, comes a decade or so late. With US credit markets in retrenchment, the spike of abusive lending that spurred the subprime mortgage crisis no longer exists.
Moreover, the Federal Reserve has already adopted rules to curb predatory lending, on track to take effect in October. Meanwhile, banks have tightened their own lending standards, helping to further squeeze credit availability, according to the Fed’s survey of senior loan officers, released Monday.
So what's the point of a new law now? It's to avert a recurrence of today's high default and foreclosure rates and to provide additional consumer protections, supporters say.
The law bans mortgage lenders from approving a loan that a home buyer clearly can’t repay. It also requires that mortgage refinancings provide “a net tangible benefit” to the consumer.
The act would also mandate, for the first time, that lenders who originate mortgages keep “skin in the game” – that is, retain at least 5 percent of the risk when a mortgage is bundled into securities and sold to another party.
A catalyst to new problems, critics say
Critics, including many House Republicans, say the proposed law will overreach and create new problems of its own.
It "imposes new and untested mandates and duties that regulators and industry participants do not know how to implement, if they can be implemented at all, and that may end up punishing the very consumers the [Democratic] majority wants to protect,” said Rep. Spencer Bachus (R) of Alabama, in a dissenting view on the bill.
The act cleared the House 300 to 114. So far, there is no companion legislation in the Senate, which refused to take up a comparable House bill in 2008. But House Democratic leaders predict that the bill will pick up momentum.
“A large number of Republicans voted for amendments that would have gutted the bill, but then felt the need to vote for the bill. That’s a sign of the cross pressures that the Republicans are under,” says Rep. Barney Frank (D) of Massachusetts, who chairs the House Financial Services Committee.
“This will have momentum [in the Senate],” he predicts, noting that Democrats could end up with a 60-40 majority in the Senate, after the resolution of the recount for the Minnesota seat. “The political sentiment is shifting,” Representative Frank adds.
A popular congressional topic
This is one of three bills moving through Congress this week that address the mortgage crisis.
On Wednesday, the House passed a bill that gives federal prosecutors more funding and staff to investigate mortgage fraud. The bill, which cleared 367 to 59, also approves an independent commission to investigate the causes of the financial meltdown. The 10-person commission, which explicitly excludes member of Congress, would have subpoena power. Some lawmakers, including House Speaker Nancy Pelosi, had urged that Congress conduct its own investigation.
The Senate passed the measure on April 28 by a vote of 92 to 4, and President Obama is expected to sign it into law.
In a move to help families cope with the foreclosure crisis, the Senate passed a bill Wednesday that eases eligibility requirements for the Hope for Homeowners program, 91 to 5.
It also increases borrowing authority for the Federal Deposit Insurance Corp. to $100 billion, up from $30 billion, and permanently increases FDIC deposit insurance for Americans to $250,000, up from $100,000 last year.
But the House and Senate split sharply over whether to give authority to bankruptcy judges to rewrite the terms of mortages. Bankruptcy reform, or “cram-down,” is in the House version of the bill, which passed 234 to 191 on March 5, but not in the Senate's. The difference now must be resolved in conference between Senate and House negotiators.