A statement from Rep. Spencer Bachus during a hearing on mortgage reformMortgagePress.comRep. Spencer Bachus, Mortgage Reform and Anti-Predatory, HR 1728
Congressman Spencer Bachus (R-AL), the top Financial Services
Committee Republican, gave the following statement during a full
committee hearing today on proposed mortgage reform
Mr. Chairman, thank you for calling today's hearing. The subject
of today's hearing is HR 1728, the Mortgage Reform and
Anti-Predatory Lending Act. Before I go in detail about my specific
concerns with HR 1728 I would like to discuss how the bill before
us differs from HR 3915, a comprehensive, bi-partisan mortgage
reform bill which I supported in the 110th Congress.
The goal of mortgage origination legislation is to protect
consumers from predatory loans without constricting the ability of
the lending industry to provide appropriate loan products to worthy
borrowers or increasing the cost of mortgage credit for millions of
Americans. HR 3915 achieved this goal by establishing a clear
standard for mortgages which recognized loans with lower rates
require less regulatory intervention than those with higher rates.
Also in that bill we put in place an ability to repay standard for
all loans and mandated income verification for higher cost loans.
We developed a qualified safe harbor mortgage standard to limit
costly law suits and to ensure that the mortgage market would
continue to offer worthy borrowers a range of appropriate loan
products. Unfortunately, HR 1728 fails to meet benchmarks for a
successful mortgage origination law. Instead, HR 1728 creates new
standards which are narrow, vague and will ultimately restrict
access to and raise the cost of mortgages for years to come.
In my opinion HR 1728 effectively relegates any home loan which
is not a 30-year fixed rate mortgage into the category of a
sub-prime mortgage. Even loans backed by the Federal Housing
Administration, Veterans Affairs Administration and Rural Housing
Service would be considered sub-prime and assumed to be predatory
if they do not conform to the narrow definition of a 'qualified
mortgage' set forth in HR 1728. The narrow definition of a
'qualified mortgage' also limits safe harbor protections from
litigation for lenders and securitizers and expands assignee
liability. Lenders and secondary market participants will be
discouraged from making non-'qualified' loans for fear of being
sued. The mortgage market will ultimately pass the price of
litigation to consumers.
There are many portions of this bill which set forth untested
standards. Most notable is the credit risk retention requirement.
Along with many commentators I agree that the 'originate to
distribute' model led to tremendous excesses. Originators need to
have 'skin in the game.' However, the requirement to retain a
portion of an origination portfolio will impact the capital
requirements of financial institutions and may limit the successful
functioning of the secondary mortgage market. We do not want HR
1728 to create an unworkable standard like last year's Hope for
Homeowners program. I urge my colleagues to carefully deliberate
this issue and gauge the impact this provision will have on all the
relevant stakeholders before we move forward.
Other aspects of HR 1728 that are deeply troubling include the
authorization of $140 million for "legal assistance" grant funds to
legal organizations. Key taxpayer protection provisions restricting
eligible uses for legal assistance funds included in the Housing
and Economic Recovery Act of 2008 have been stripped out of HR
1728. Instead this bill uses taxpayer funds to finance civil
lawsuits from home owners and tenants. Groups engaged in federal
election fraud like ACORN will be eligible for receiving legal
assistance grants. However, the bill has no requirement that
HUD-approved housing counseling organizations provide any oversight
of the legal assistance grant program.
Finally, as introduced HR 1728 permanently alters contract law
by requiring participation in the Section 8 program for all new
owners of foreclosed properties with Section 8 tenants. By
discouraging purchases this provision will disrupt the market for
multi-family properties when foreclosure inventories are mounting.
This provision may also discourage participation in the Section 8
Mr. Chairman, as we move forward with debate I would like to
remind the Committee of laws and regulations already in effect
which address problems we agree plagued mortgage origination. In
2007 I saw the need for origination reform and I introduced
legislation to create a national licensing and registration
database for all mortgage originators which became law as a part of
the Housing and Economic Recovery Act of 2008. The creation of a
national licensing and registration system brings greater
accountability and professionalism for mortgage originators.
Fifteen states have already adopted this standard, and several
dozen more are currently considering legislation. Last July the
Federal Reserve issued regulations under the Home Ownership Equity
Protection Act (HOEPA), which implemented many of the provisions in
the predatory lending legislation I supported last Congress. The
Fed rules address predatory practices and products; strengthen
underwriting standards, address prepayment penalties and escrowing
of taxes and insurance. It is important to let these rules work
before we begin to layer restrictions on all but the most
Mr. Chairman, this is the first hearing focused on the
legislation. Even though several of the provisions lack details and
have not been fully vetted by all relevant stake holders, the
Committee will mark up the legislation early next week. The
legislation constitutes significant changes to our financial
markets. We must fully consider all the ramifications of this bill
and its impact on both the mortgage market and the greater economic
recovery before voting on a finished product.
For more information, visit bachus.house.gov.