Portfolio Lending and Mortgage Access Act

Floor Speech

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Mr. BARR. I thank the gentleman from Texas, the chairman of our committee, for his leadership and support of this legislation.

Mr. Speaker, the best policies serve both the interests of the individual and the broader national interests. In this case, it is in the interest of the borrower to have an affordable, right-sized mortgage. It is also in the interest of the Nation to have a sound financial system safe from the excesses that led to the crisis in 2008. It is possible to satisfy both objectives, but it will require the Federal Government to acknowledge that changes must be made to the Consumer Financial Protection Bureau's interpretation of the Dodd-Frank law.

The ability to repay requirements in Dodd-Frank are designed to ensure that a lender takes into account the borrower's ability to repay a loan. Simple enough. But the CFPB has implemented the ability to pay rule provision by promulgating a one-size-fits-all, top-down, Washington-directed qualified mortgage rule.

Under the CFPB's approach, mortgages have been made safer by effectively making them unavailable to a substantial number of would-be home buyers. According to the Federal Reserve, 22 percent of those who borrowed to buy a home in 2010--one out of every five borrowers--would not have met the underwriting requirements for a qualified mortgage.

There is no debating that for the benefit of a mortgage borrower or his or her lender and the financial system, a borrower should have a demonstrable ability to repay that loan. The only question is who is in the better position to determine whether that borrower is able to repay the loan. Is it a Washington bureaucrat without any relationship with the borrower, or is it a lender with a full view of the customer's finances and a bank or credit union that must bear 100 percent of the downside risk of default?

Dodd-Frank answered that question by taking sides with the Washington bureaucrats. The result has been a housing market struggling to recover as a result of scarce mortgage credit, impacting job creation and affordable housing, and the loss of the consolidation of community banks and credit unions.

It is time to try something different. H.R. 1210, the Portfolio Lending and Mortgage Access Act, is the solution. This legislation would treat mortgages held on the balance sheets of financial institutions as qualified mortgages for purposes of the Bureau's mortgage lending rules.

Because mortgage lenders retain all of the risk of the loans held on portfolio, they have a strong incentive to ensure that the loan is repaid. Such a policy would drive private sector risk retention--a goal of the Dodd-Frank Act itself--and mark a return to relationship lending where a bank or credit union can tailor products to a customer's needs and credit risk without running afoul of the one-size-fits-all government requirements.

Small banks and credit unions have been disproportionately impacted by these rules. It is no coincidence that Harvard researchers have found that, since Dodd-Frank's passage, community banks have lost market share at a rate double that experienced prior to Dodd-Frank's passage in 2006 to 2010, a period including the entirety of the financial crisis.

By bearing the risk, financial institutions have every incentive to make sure that the borrower can afford to repay that loan. And no less than Chairman Barney Frank endorsed this concept at a hearing before the Financial Services Committee last year, saying he would like the main safeguard against bad loans to be risk retention because that leaves the decision in the hands of whoever is making the loan.

The Bureau, itself, made this key point in its own rulemaking where it recognized that portfolio lenders have a strong incentive to carefully consider whether a consumer will be able to repay a portfolio loan, at least, in part, because the small creditor retains the risk of default.

This bill also importantly provides a viable alternative to the originate-to-distribute mortgage lending model that contributed to the bubble in residential real estate and massive taxpayer bailouts. Indeed, this legislation embraces an approach that more effectively ensures that borrowers have the ability to repay than the CFPB's restrictive rule. The result will be expanded access to mortgage credit without additional risk to the financial system or the taxpayer.

I would just note that the ranking member talks about putting taxpayers at risk again. But the cause of the financial crisis was not portfolio lending by community banks and credit unions; it was government policy: Fannie Mae and Freddie Mac buying billions of subprime, improperly underwritten mortgages.

This policy, the GSE exemption to the qualified mortgage rule, continues to do this day. My bill offers an alternative to this risky practice of incentivizing origination without underwriting and distribution to taxpayer-backed GSEs. This is particularly important because the commonsense bill that is before the Congress recognizes that the most effective way to ensure that a borrower has an ability to repay is not one-size-fits-all Washington mandates.

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Mr. BARR. Just to conclude, instead, the most effective way to ensure that a borrower has the ability to repay is to restore the traditional relationship banking that ensures that financial institutions bear the downside risks associated with their business decisions.

H.R. 1210 has the support of the American Bankers Association, the Independent Community Bankers of America, the Credit Union National Association, the National Association of Federal Credit Unions, the National Association of Home Builders, and the U.S. Chamber of Commerce.

The housing sector represents a third of the economy, and the lack of available mortgage credit is impacting our recovery. I encourage my colleagues to join me to expand access to mortgage financing and support economic growth.

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