Press Coverage
Bachus Backs Frank's Industry-Opposed Subprime Bill
CongressDaily
December 5, 2007
House Financial Services Chairman Frank received a major boost today for his bill that would crack down on predatory lending in the home mortgage market by picking up the support of Financial Services ranking member Spencer Bachus, R-Ala. Bachus said Frank made sufficient changes to the manager's amendment that allowed him to support the measure, which would create a national standard for mortgage originators and impose liability on investment firms that purchase, repackage and sell mortgages. The bill -- opposed by the banking industry but supported by consumer groups -- will be marked up Tuesday. "The most important fact about this compromise is that it has significant new safeguards to protect families from abusive lending," Bachus said in a statement. The two have been working on an anti-predatory lending bill for more than two years, but Frank maintains that the measure could never advance when the chamber was under GOP control because Republican leadership was aligned with the banking industry. But as the subprime mortgage market collapsed, Frank, in his first year as chairman, wrote a bill to bring more regulatory oversight to brokers, nonbank lenders and Wall Street firms that sell mortgaged-backed securities -- all of whom played roles in the loans entering foreclosure. Bachus' endorsement is a surprise because he won the ranking member position over Rep. Richard Baker, R-La., late last year partly because he was viewed as being more in lockstep with leadership as opposed to one who would cut deals with Democrats. The manager's amendment narrows the scope of provisions that would prohibit originators from steering customers into certain loans. The bill would allow incentives based on the volume of loans originated and narrow the scope of yield spread premium, in which mortgage brokers are eligible to receive fees from lenders for issuing a loan with a higher interest rate than the minimum rate the borrower could have qualified for. That prohibition would apply only to subprime loans. In addition, the bill originally would have prohibited subprime loans to be made if the borrower's debt-to-income ratio exceeded 50 percent. The bill will now leave that issue to federal banking regulators. Sensing possible unease over his endorsement, Bachus sent a memo to GOP panel members explaining his position. "The bill that the Committee will mark up tomorrow is not perfect -- no bill ever is -- and not all of you will be able to support it, even with the significant improvements that we have negotiated over the past week. While I respect that point of view and the philosophical principles that inform it, I also believe that in this instance, experience over the past few years clearly exposed a lack of legislative and regulatory discipline," Bachus wrote. "It is important that Republicans be for something, and this legislation, as substantially revised by the Manager's Amendment, is, in my judgment, worthy of Republican support."
Bachus pointed to several changes in the manager's amendment, such as a uniform national standard for assigning liability for firms that buy mortgages and package them into the secondary market. Some states have enacted laws on the subject. The manager's amendment also reduces the time, from six years to three years, a borrower could bring a claim for rescission of a bad loan because it violated provisions in the bill. Frank also changed the bill to allow federal regulators more flexibility to adjust "safe harbors" in the bill that would remove liability mortgage originators and securitizers.