House Panel OKs New Bill Revamping Mortgage Regs

With support from eight of the panel's 29 Republicans, the House Financial Services Committee on Wednesday overwhelmingly approved a new version of the mortgage regulation overhaul passed by the House in the last Congress as a part of an attempt to crack down on predatory lending and prevent a recurrence of the subprime loan debacle.

Like the 2007 bill, the new measure, which cleared the committee 49-21 after two days of debate, would set minimum standards for mortgages, requiring lenders to among other things establish that borrowers have a reasonable ability to make payments both during any discount introductory period and after their rates rise to market levels.

In addition, the current bill retains the language requiring mortgages to have a "net tangible benefit" for borrowers.

Republican opponents of this year's bill charged that it would force responsible homeowners to bail out deadbeats and exacerbate the scarcity of credit that helped cause the current recession. "We are going to protect people right out of their homes," said Rep. Jeb Hensarling, R-Texas.

Supporters of the bill said it is needed to help correct defects in the market that led to the collapse of housing market. "If this bill passes [Congress], there will continue to be a mortgage market and, in fact, it will function better," said House Financial Services Chairman Barney Frank.

The legislation cleared the committee after Democrats mobilized to defeat a series of Republican amendments intended to gut the measure or soften its impact on the financial industry.

The committee rejected 41-29 an amendment by Rep. Patrick McHenry, R-N.C., that would have narrowed the scope of loans that could be considered as "high-cost" mortgages under the 1994 Home Ownership Equity Protection Act.

Republican backers of the amendment said more regulation of the subprime market was not justified in view of the fact that 76 percent of these mortgages were being paid on time. Democrats countered that a 24-percent default rate was de-stabilizing.

The committee also rejected 43-27 an amendment from Rep. Scott Garrett, R-N.J., to eliminate a requirement that mortgage originators retain at least 5 percent of each loan as a hedge against risk. Democrats argued that the amendment was not needed because the underlying bill would give regulators the flexibility to change the retention standard.