Garrett Mention - CQ: House Panel Approves Bill to Require Registration of Mortgage Lenders
Washington,
Apr 30 -
By Phil Mattingly and Kate Davidson, CQ Staff
A House panel approved legislation Wednesday designed to crack down on predatory housing lending, sending to the floor a measure capable of changing the face of the mortgage market.
The Financial Services Committee approved the bill (HR 1728) by a vote of 49-21, with eight Republicans joining committee Democrats in support. The legislation would require the licensing and registration of all mortgage lenders and proof of a borrower’s ability to repay a home loan.
The House will take up the legislation May 7, Chairman Barney Frank of Massachusetts said.
The bill’s approval capped nearly two full days of work for the committee, as members approved 24 amendments and hammered out additional details, clarifications and compromises on several of the bill’s most notable provisions. The measure is a response to the meltdown in the housing market — and an effort to make sure it isn’t repeated, by reining in what critics consider risky behavior by mortgage issuers, homebuyers and “securitizers,” who package mortgages into securities for sale to investors.
Many experts trace the problems in the housing market, which helped send the entire economy into a nosedive, to a diffusion of responsibility that encouraged risky lending. Mortgages were typically taken off a bank’s books after they were issued, converted into securities and sold. The securities, in turn, were backed by insurance products known as credit default swaps.
When risky loans were defaulted on, the system fell like dominoes, infecting the credit market and the wider economy.
The legislation would require lenders to keep at least a 5 percent stake in any mortgages that are bundled into securities and sold to investors on the secondary market.
Plenty of Amendments
But the panel adopted an amendment Wednesday that would give federal banking agencies the authority to make exceptions or adjust the requirement. The amendment would give regulators authority to apply the risk retention provision to the securitizer of a loan.
The panel adopted the amendment, 67-1, with Randy Neugebauer, R-Texas, voting against the language.
Scott Garrett, R-N.J., and Patrick T. McHenry, R-N.C., offered an amendment that would have struck the risk retention language and replaced it with a study by federal banking agencies of ways for lenders to retain some responsibility for home loans. The panel shot down that amendment, 27-43.
The underlying bill would apply legal liability to securitizers and others who assume ownership of a mortgage, typically known as assignees. Panel Republicans complained that the provision would result in stunting the growth of a mortgage securitization market that is widely regarded as vital to the rejuvenation of the economy.
“At a time of national credit crunch . . . this is just jamming on the brakes,” said Jeb Hensarling, R-Texas.
Ed Royce, R-Calif., offered an amendment that would shield securitizers and assignees from any liability. The provision in the underlying bill would essentially “expose a broad number of financial institutions to legal action based on what instead occurred at the mortgage origination level,” Royce said. The panel defeated the amendment by voice vote.
Frank offered two manager’s amendments, both of which were adopted by voice vote. One would require securitizers to retain access to all loans packaged and sold. Those who don’t would be subject to punitive damages.
“People say ‘I try to get in touch with the person that holds my loan, but I couldn’t find anybody to talk to,’” Frank said. “This makes it possible for them to deal with the people that they have to deal with.”
In addition, the underlying legislation would:
• Prohibit any compensation structure that could cause a loan originator to steer applicants toward more costly mortgages;
• Provide protections to tenants of property that is being foreclosed, including a 90-day grace period before eviction; and
• Create an Office of Housing Counseling within the Department of Housing and Urban Development.
Source: CQ Today Print Edition
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