Portfolio Lending and Mortgage Access Act

Floor Speech

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Mr. BARR. Madam Speaker, I move to suspend the rules and pass the bill (H.R. 2226) to amend the Truth in Lending Act to provide a safe harbor from certain requirements related to qualified mortgages for residential mortgage loans held on an originating depository institution's portfolio, and for other purposes, as amended.

The Clerk read the title of the bill.

The text of the bill is as follows: H.R. 2226

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.

This Act may be cited as the ``Portfolio Lending and Mortgage Access Act''. SEC. 2. MINIMUM STANDARDS FOR RESIDENTIAL MORTGAGE LOANS.

Section 129C(b) of the Truth in Lending Act (15 U.S.C. 1639c(b)) is amended by adding at the end the following:

``(4) Safe harbor.--

``(A) In general.--A residential mortgage loan shall be deemed a qualified mortgage loan for purposes of this subsection if the loan--

``(i) is originated by, and continuously retained in the portfolio of, a covered institution;

``(ii) is in compliance with the limitations with respect to prepayment penalties described in subsections (c)(1) and (c)(3);

``(iii) is in compliance with the requirements related to points and fees under paragraph (2)(A)(vii);

``(iv) does not have negative amortization terms or interest-only terms; and

``(v) is a loan for which the covered institution considers, documents, and verifies the debt, income, and financial resources of the consumer in accordance with subparagraph (C).

``(B) Exception for certain transfers.--Subparagraph (A) shall not apply to a residential mortgage loan if the legal title to such residential mortgage loan is sold, assigned, or otherwise transferred to another person unless the legal title to such residential mortgage loan is sold, assigned, or otherwise transferred--

``(i) to another person by reason of the bankruptcy or failure of the covered institution that originated such loan;

``(ii) to an insured depository institution or insured credit union that has less than $10,000,000,000 in total consolidated assets on the date of such sale, assignment, or transfer, if the loan is retained in portfolio by such insured depository institution or insured credit union;

``(iii) pursuant to a merger of the covered institution that originated such loan with another person or the acquisition of a the covered institution that originated such loan by another person or of another person by a covered institution, if the loan is retained in portfolio by the person to whom the loan is sold, assigned, or otherwise transferred; or

``(iv) to a wholly owned subsidiary of the covered institution that originated such loan if the loan is considered to be an asset of such covered institution for regulatory accounting purposes.

``(C) Consideration and documentation requirements.--The consideration and documentation requirements described in subparagraph (A)(v) shall--

``(i) not be construed to require compliance with, or documentation in accordance with, appendix Q to part 1026 of title 12, Code of Federal Regulations, or any successor regulation; and

``(ii) be construed to permit multiple methods of documentation.

``(D) Definitions.--In this paragraph--

``(i) the term `covered institution' means an insured depository institution or an insured credit union that, together with its affiliates, has less than $10,000,000,000 in total consolidated assets on the date on the origination of a residential mortgage loan;

``(ii) the term `insured credit union' has the meaning given the term in section 101 of the Federal Credit Union Act (12 U.S.C. 1752);

``(iii) the term `insured depository institution' has the meaning given the term in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813);

``(iv) the term `interest-only term' means a term of a residential mortgage loan that allows one or more of the periodic payments made under the loan to be applied solely to accrued interest and not to the principal of the loan; and

``(v) the term `negative amortization term' means a term of a residential mortgage loan under which the payment of periodic payments will result in an increase in the principal of the loan.''
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Mr. BARR. Madam Speaker, I yield myself such time as I may consume.

Madam Speaker, H.R. 2226, the Portfolio Lending and Mortgage Access Act, represents a very simple solution to a significant policy challenge facing our economy: how to expand access to mortgage credit without replicating the accumulation of excess risk in the mortgage- backed securities market like we witnessed in the run-up to the 2008 financial crisis.

My legislation achieves both goals by extending the qualified mortgage legal safe harbor to small creditors, banks, and credit unions with total consolidated assets of $10 billion or less, that originate and hold residential mortgage loans in portfolio, rather than selling or securitizing them, allowing those lenders to satisfy Dodd-Frank's ability-to-repay rule.

Such a policy would actually incentivize private sector risk retention--a goal of the Dodd-Frank Act itself--and mark a return to relationship lending in which a bank or credit union can tailor products to a consumer's needs and credit risk, without running afoul of one-size-fits-all government requirements. Under CFPB regulations, only government-defined qualified mortgages enjoy a presumption that a lender has satisfied the Dodd-Frank law's ability-to-repay requirements.

Small banks and credit unions have been disproportionately impacted by these rules, given their reliance upon residential mortgage lending and greater involvement in small dollar or balloon loans that run afoul of current QM regulations. It is no surprise that Harvard researchers have found that, since Dodd-Frank's passage, community banks have lost market share at a rate double that experienced between 2006 and 2010, a period including the entirety of the financial crisis. It is also not a surprise that many small community financial institutions have testified in front of the House Financial Services Committee and to many of my colleagues that they have simply left the mortgage business altogether because of the difficulties associated with the QM rule as currently constructed.

Indeed, a third of the National Association of Realtors survey respondents reported being unable to close mortgages due to a requirement of the qualified mortgage rule. Residential mortgages were the product or service most often identified by surveyed banks as a candidate for discontinuation as a result of Dodd-Frank. A recent study by the John F. Kennedy School of Government at Harvard University documents the falling share of bank participation in mortgage originations.

Everyone agrees, especially after the 2008 financial crisis, that a borrower should be required to show a demonstrable ability to repay. The only question is: Who is in the best position to make that determination--a community banker with a professional and, perhaps, even a personal relationship with the borrower who has full view of that borrower's character, creditworthiness, financial situation, and who is willing to assume 100 percent of the downside risk of default; or is it an unaccountable, unelected bureaucrat in Washington, D.C., who literally knows absolutely nothing about that borrower?

By bearing 100 percent of the risk, financial institutions have every incentive to make sure that a borrower can afford to repay a loan. Banks and credit unions would have more than just skin in the game. Under this legislation, their interests would align perfectly with that of a borrower.

As one witness in front of our committee testified: ``A financial institution that retains a loan's credit and interest-rate risk has a keen interest in engaging in thorough, sound underwriting to determine the borrower's ability to repay. Allowing a financial institution to make a customer-specific lending decision on a loan it intends to hold in its portfolio can be a more effective way of protecting consumers than regulatory attempts to micromanage mortgage terms with inflexible standards.''

No less than Barney Frank, former chairman of the committee, endorsed this concept in a hearing before this committee, 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 CFPB also, itself, acknowledged this key point in its own rulemaking, where it recognized that portfolio lenders ``have strong incentives 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 legislation also presents a viable alternative to the ``originate to distribute'' mortgage lending model that contributed to the subprime mortgage meltdown and bubble in residential real estate and taxpayer bailouts. The result is expanded access to mortgage credit without additional risk to the financial system or to the taxpayer.

In fact, this is particularly important for young families and first- time home buyers, who tend to have difficulty meeting the ability-to- repay requirements due to circumstances, such as significant student loan debt, but who are otherwise creditworthy.

I have been working on this legislation for 5 years now, and I am happy to announce that, this year, we had a bipartisan breakthrough. That is because, at the committee markup, I offered an amendment that limited the scope of this bill to financial institutions with less than $10 billion in assets. And my distinguished colleague, Representative Capuano, offered a technical amendment that enhanced the legislation by clarifying a few key provisions. I am pleased to report that, because of those two amendments, the Portfolio Lending and Mortgage Access Act passed with unanimous support in the committee and is now on the floor today for consideration.

I want to thank Chairman Hensarling, Ranking Member Waters, Representative Capuano, the Kentucky Bankers Association, the Kentucky Credit Union League, 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 United States Chamber of Commerce for their hard work on this important legislation.

If passed by the House, it is my hope that the Portfolio Lending and Mortgage Access Act moves quickly through the Senate. Eleven of our Democratic colleagues in the upper Chamber support this exact language, which is in Chairman Crapo's community financial institution relief bill. Together, Republicans and Democrats can deliver on the regulatory relief that many of us in this body have promised to our constituents that will enable more of them to buy the home of their dreams.

Madam Speaker, I invite all of my colleagues to vote for this important pro-homeownership legislation that perfectly aligns lender and borrower interests to the benefit of America.

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Mr. BARR. Madam Speaker, I yield myself as much time as I may consume.

Madam Speaker, I want to thank my friend, the gentleman from Michigan (Mr. Kildee), for his constructive comments, his support. And the gentleman is absolutely correct. He engaged with me and my colleagues who were cosponsoring this legislation in a very constructive manner. He made valuable contributions, along with Mr. Capuano and the ranking member. Several other members on the other side of the aisle, Mr. Perlmutter, for example, offered his thoughtful comments as well. I appreciate the support, the bipartisan support, working through a compromise to get this legislation to where it is today, so I thank the gentleman for that.

Madam Speaker, I yield 2 minutes to the gentleman from Minnesota (Mr. Emmer), who is also a sponsor of this legislation and a distinguished member of the Committee on Financial Services.

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Mr. BARR. Madam Speaker, I yield 3 minutes to the gentleman from Illinois (Mr. Hultgren), who is also, I believe, a sponsor of the legislation.

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Mr. BARR. Madam Speaker, I yield myself the balance of my time.

In closing, let me just reiterate that this legislation solves two problems. It solves the problem of responsible expansion of access to mortgage credit, access to that American Dream of home ownership; and, at the same time, preventing the mistakes that led to the 2008 financial crisis, the originate to distribute model where originators of mortgages had no skin in the game and they allowed those mortgages to be poorly underwritten or not underwritten at all, with no documentation, and then securitized and sold into the secondary market, really without any eye towards the consumer and the borrower's ability to repay.

Everybody in this institution, as evidenced by the bipartisan work here, we all recognize that a borrower should demonstrate an ability to repay that loan, but the crux of this legislation, at the core of this legislation is a recognition that a local community banker, a local credit union, a lender with a personal relationship with a borrower is in the best position to determine whether or not that borrower, that prospective homeowner, can repay that loan.

When there is risk retention, when that lender is charged with the responsibility of maintaining that loan in portfolio, the lender is much more incentivized to properly underwrite that loan and make sure that that customer, that borrower, that future homeowner, has a demonstrable ability to repay. I think it is a much better substitute to a one-size-fits-all credit box from, frankly, bureaucrats in Washington, D.C., who have no eye towards the creditworthiness of that particular borrower.

We have worked with our friends on the other side of the aisle to make this a bipartisan piece of legislation limiting the size of the institutions that can access this regulatory relief. But, clearly, when community financial institutions, bankers from around the country, every part of the country, are saying that they see the QM rule as not ``qualified mortgages,'' but as ``quitting mortgages;'' and when we see an unnecessary constraint of mortgage credit; and when the National Association of Realtors are reporting that they are unable to close mortgages due to this onerous qualified mortgage rule, clearly the pendulum has swung too far.

So, yes, we needed some reforms in the aftermath of the financial crisis. This QM rule went too far. This is a recalibration of that. And this is important regulatory relief for our community financial institutions that will inure to the benefit of the American home-buying public, and it will do so in a responsible way, providing a viable alternative to the originate to distribute practices that really led to the financial crisis.

Madam Speaker, let me just make one final observation, and that is to give credit to the administration. The Department of the Treasury, in their findings and recommendations in their report on banks and credit unions, they recognized that this was a problem in the mortgage lending space and they made a recommendation also to increase the portfolio lending safe harbor to institutions with $10 billion in assets or lower; and that, as they argued, will accommodate loans made and retained by small depository institutions, provide that needed regulatory relief to our community financial institutions, and also expand access to mortgage credit in a responsible way.

Madam Speaker, I thank my colleagues for their support. At this time I have no further requests for time, and I yield back the balance of my time.

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