The U.S. House of Representatives has announced the passage of HR 4173, the Wall Street Reform and Consumer Protection Act of 2009, by a narrow vote of 223-202. Among other enforcements, HR 4173 will create a Consumer Financial Protection Agency (CFPA) to regulate the credit and housing industries, places restrictions on executive compensation, and increases the government's authority when dealing with failing financial institutions.
"Unfortunately, we are not in a position where we can support this bill as currently constituted. Throughout this process, we have worked with members of the House on both sides of the aisle to enhance their understanding of the possible negative implications this bill has for current and future homeowners, the lending industry and the mortgage market as a whole," said Robert E. Story Jr., CMB, chairman of the Mortgage Bankers Association (MBA). "Regrettably, the House moved forward and passed a bill that could adversely impact borrowers and lenders alike. By not creating a uniform, national regulatory standard, the bill continues the conflicting and confusing patchwork of state and local laws that result in increased costs for borrowers."
HR 4173 also includes another measure, one that would require the Federal Reserve and financial regulators to examine the combined impact of new retention requirements and new accounting standards (FAS 166 and 167) on credit availability, and to report to Congress with specific recommendations prior to any rulemaking on the retention.
"And, the risk retention provisions in the bill could make unsustainable the business models of hundreds of non-depository, independent mortgage banking firms that offer up more than a quarter of the mortgages made in this country today," said Story. "On top of that, depository institutions will have to restrain their lending to meet the new requirements. Eliminating that much lending capacity will surely increase costs and limit borrowing options for many qualified homebuyers."
Patrick C. Sargent, president of the Commercial Mortgage Securities Association (CMSA), said, "A risk retention provision that gives market and financial regulators flexibility in overseeing diverse asset types and structures is essential to support an overall recovery in commercial real estate. Passage of this language by the full House today is a tremendous step toward restoring access to credit in this market."
Prior to the final vote, a number of amendments to alter the bill were vetoed. Among them, Rep. Walt Minnick (D-ID) issued an amendment that would have weakened the formation of the CFPA through the establishment of a 12-member council of existing regulators to protect consumers staffed by the Treasury Department. Minnick argued that his proposed council would only cost $50 million, compared to the estimated $4.6 billion cost of creating the CFPA. Rep. Jim Marshall (D-GA) also offered an amendment that would have allowed bankruptcy judges to reduce the balances of homeowners facing foreclosure.
"We will continue to work with members of Congress, especially in the Senate where debate on this issue is just getting underway, on these issues and others in an effort to produce financial modernization legislation that strengthens and improves the regulation of the United States financial infrastructure," said Story.
"We are gratified that the bill gives regulators the flexibility to recognize the unique nature of commercial real estate lending and applaud legislators for their efforts to avoid further disrupting the commercial real estate market," said Jan S. Sternin, CMB, senior vice president of commercial and multifamily at the MBA. "Risk retention already exists in the commercial mortgage-backed securities (CMBS) business model through a market-based solution in which specialized participants act as gatekeepers by purchasing the B piece, or first loss position. These participants possess a sophisticated knowledge of the underlying market and assume the risk retention role."