Providing For Consideration Of H.R. 1728, Mortgage Reform And Anti-Predatory Lending Act
Floor Speech
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Mr. SESSIONS. I thank the gentlewoman.
As I rise today, before I begin my formal statements, I would like to acknowledge that the gentleman, Mr. Frank, the chairman of the committee, has come to the floor, and I want to personally thank the gentleman for engaging with me and perhaps other members of the Republican Party on working on this bill. I want to personally thank the chairman for that engagement and believe that it will result in the opportunity for Republicans to have a better say on the bill that will be before the House today, and I want to personally thank the gentleman.
Madam Speaker, I do rise today, however, in opposition to H.R. 1728, which is the majority's misled attempt to bring stability back into the mortgage market. As the American people will soon see, many provisions of the bill are a destructive force to both the lending industry and, in turn, the American homebuyer.
First, the new Federal Reserve regulations already exist and are about to be implemented in October of this year, which means that this work on predatory lending has already taken place.
Second, this bill establishes a new group of qualified mortgages, which limits consumer choice of mortgages and unduly burdens the mortgage industry.
Third, it establishes new credit risk retention rules, which dramatically limit the successful functioning of the secondary market, especially small, nonbank lenders.
And, fourth, it authorizes a $140 million slush fund for legal defense funds.
Last July, the Federal Reserve issued new regulations under the Home Ownership and Equity Protection Act which implemented many provisions of the predatory lending legislation of Congress last year. As part of this implementation, new Federal rules have been developed which address predatory practices and products, bringing an end to a variety of issues which have haunted the subprime market, such as poor underwriting standards. These rules already are set to take effect in October of this year.
My colleagues from both sides of the aisle understand that these new regulations will soon be in effect, and certainly cleaning up the lending industry is important. Even Chairman Frank has previous knowledge, and I quote, that ``the Federal Reserve has adopted regulations so that the predatory and deceptive lending practices that led to the subprime crisis will be prohibited,'' already done.
But rather than allowing the Fed's carefully constructed regulations to take effect, this new majority has decided to draft their own mortgage reform bill with their own unique twist. Unfortunately, this twist includes new and untested mandates and duties, that even if they can be implemented, they may end up punishing the very consumers that this majority party is trying to protect.
My question is simple: Why is Congress meddling with regulations that will soon yield significant and expected benefits in combating mortgage fraud, eliminating the bad actors of the industry, and providing greater protection to the consumer?
While this legislation attempts to correct past excesses in the mortgage market by establishing new standards for mortgage origination, and imposing greater legal liability on the secondary market, this bill, in fact, injects legal uncertainty into the lending process, thereby raising the cost and reducing the availability of mortgage credit to consumers. Allowing a slush fund for people to sue is a prime example of what we are talking about. I would like to say this is an unintended consequence. I think it's an intended consequence.
One of the primary provisions which contribute to the higher cost and reduced availability of loans is the misconstrued establishment of a new class of loans called qualified mortgages. Any loans deemed as qualified mortgages are, in theory, protected under the bill's limited safe harbor and are exempt from the new lending risk retention requirements.
All other nonqualified mortgages are excluded from this safe harbor and siphoned into the category of subprime mortgages. In turn, any lender can be sued for selling nonqualified mortgages.
The kicker, however, is that H.R. 1728 makes all real safe harbor mortgages rebuttable, meaning that borrowers can sue any creditor for any mortgage.
Under the terms of this bill, no mortgages are protected by safe harbor laws and all lenders can be sued. That is going to have a direct and devastating consequence on the marketplace.
When the bill was introduced in Congress, the last Congress, the bill appropriately filtered most mortgages into three types of loans. For the sake of explanation, let's call them green, yellow and red mortgages.
Green light mortgages are good, traditional, protected mortgages. Yellow light mortgages are potentially hazardous mortgages. In this case, the consumer has the right to sue for loss in the case of predatory lending, while the lender maintains the right to a fair defense.
Lastly, red mortgages are simply mortgages presumed bad and the law allows the consumer to sue for any loss.
Unfortunately, according to this year's version of the bill, the law will only allow for green and red light mortgages, and, most importantly, neither of them will have a real safe harbor because borrowers can sue any creditor for any mortgage. Regardless of how safe and affordable and how well an alternative mortgage may have served the borrower, lenders will begin making fewer and more expensive loans out of fear of being sued.
At the end of the day, what is the purpose of this mortgage reform? A
government-mandated mortgage structure enforced by the very taxes paid by the American homeowner, or providing for consumer choice of loans which best suits the needs of responsible homebuyers with the assurance of meaningful customer protection? I think we can see what we are going to get.
Madam Speaker, I have a concern also with the new ``credit risk retention'' requirements. This provision will force any loan originator to hold 5 percent of any mortgage that does not fit the bill's narrow safe harbor, what is known as the ``qualified mortgage.'' The ``credit risk retention,'' as it is referred to, requirement is a far-reaching requirement that leaves my colleagues and me confused as to how certain groups, such as smaller lenders, will even survive.
The fact stands that many smaller nonbank lenders do not have the same reliable sources of funding as depository institutions. These lenders would be unable to compete, let alone to operate, at a competitive level. They simply cannot compete. Additionally, this provision will necessitate that larger lenders increase their capital. This is the wrong approach during a time when the government is concerned that lenders are insufficiently capitalized; moreover, during a time in which the government is making the taxpayer pay for these insufficiencies. David Kittle, chairman of the Mortgage Bankers Association, testified in front of the Financial Services Committee on April 23 of this year. And here is what he said, ``at a time when policymakers are focusing so much of their efforts on injecting capital into the financial services sector, this provision would force an inefficient use of capital across all types of institutions and threaten to further impair their ability to lend at all.'' This will simply narrow choices, lessen credit and increase costs for borrowers and taxpayers, as well as increasing lawsuits.
While a critical element of mortgage reform should be giving incentives for greater accountability to lenders without damaging the mortgage market, H.R. 1728 imposes huge liability on all groups involved in issuing a loan while circumventing any investor liability. Unfortunately, the bill magnifies the already substantial legal risks faced by participants in the mortgage market, dramatically reducing any incentives for lenders to partake in the mortgage market.
And as if new litigation were not enough, this bill authorizes $140 million for legal assistance grant funds to legal organizations to provide taxpayer-funded legal defenses for homeowners in default or facing eviction. Simply put, this bill sets up lenders for failure by burdening them with undue liabilities and funding trial lawyers. This bill lacks the key taxpayer and lender protections, opening the door to taxpayer-financed frivolous civil lawsuits which will ultimately ruin the mortgage industry. I'm sure it will empower a bigger Federal Government, however.
Additionally, this bill subjects the taxpayer to involuntarily funding groups like ACORN, who will be eligible for receiving grants from this legislation. My colleague from Minnesota was able to add a provision which sufficiently blocks any organization that has been indicted from receiving any funds--for example, ACORN. Unfortunately, the majority is actively making efforts to reopen groups like ACORN to taxpayer funds with no regard for past indiscretions.
Restructuring the mortgage industry is essential in returning safety and security to the housing industry. We don't debate that. Unfortunately, the majority party is choosing to streamline an overzealous mortgage bill without allowing the Federal Reserve regulations to first go into effect, not to mention the destructive nature of this bill on the lending industry and what the impact of this bill will have on every single American who is striving for the dream of homeownership, namely, making it more expensive and less available to those people who need it the most.
H.R. 1728 is a jackpot for trial lawyers, kryptonite for the mortgage industry, and ultimately crushes dreams of homeownership for many Americans. Therefore, Madam Speaker, I oppose the rule and the underlying legislation, and I hope my colleagues do the same.
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Mr. SESSIONS. Madam Speaker, I find myself in a position of making sure that this body does understand that lots of debates have taken place. I know the gentleman, Mr. Frank, has been on the committee for a long time and has argued very vehemently for years that the crisis was not about to happen, that the crisis and the changes that were made to Fannie and Freddie and subprime mortgages and all these things, that there was no crisis that was getting ready to happen. And I would respectfully say to the gentleman, it seems like Mr. Greenspan agreed with that. Something did happen. And it is up to us as thoughtful Members to make sure that we appropriately then take action where necessary. This was done last year. The Federal Reserve understood it, went through a deliberative process, took feedback from the industry and took feedback from consumers. The damage had been done.
We are now talking about predatory lending. We are not talking about what got us in the problem in the first place. We are talking about now that people are in trouble, how do we help save them? How do we help work with them? How do we make sure that the system properly works not just for people who might be in trouble, but people who might be in the future? The Federal Reserve has already done this. We already know that those rules will take place in October.
What I would argue with the gentleman about is going then too far, not doing something. I wouldn't argue with the gentleman. The gentleman is really very thoughtful in much of what he does. But the legislation will narrow choices, lessen credit and increase costs for borrowers and taxpayers. And at some point there has to be some balance. We are in agreement that we ought to move forward, that we ought to do things, that the laws that will take place through the regulation of the Fed are proper, necessary and needed. But we are not for making lawsuits a better part of what we are doing, providing money for people to sue, narrowing choices, lessening credit and increasing costs. And that is our decisionmaking point where we disagree with not only this legislation but perhaps moving this bill in the first place.
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Mr. SESSIONS. Madam Speaker, you know, two points: first of all, we are sitting here blaming each other. I hope I am not doing that about the past. We were talking about today's bill, the right way to balance what needs to be done now with the understanding that the Fed has already acted, notwithstanding whether the gentleman, Mr. Frank, thinks that they should have acted or whether the chairman of the Fed should have done something. The bottom line is that the gentleman was right there with him the whole time. ``There is no problem. There is no systemic risk.'' And that was the constant message that we heard from the gentleman, Mr. Frank, about the same big issue.
But I would like to take issue with one point, and that is Republicans have done nothing. Well, I would like to say that there was Republican-authored legislation called the SAFE Act. And the SAFE Act which created licensing and registration for the mortgage industry was enacted last year.
The Conference of State Bank Supervisors had called ranking member, oh, yes, he is a Republican, Spencer Bachus' bill ``the most significant mortgage reform in years.''
So let's be a little bit clear: Republicans were not here doing nothing. Our friends, the majority party, were offering public comment about what was not going to happen, and the subprime mortgage effort did happen. And now what we are trying to do is work with a set of rules and regulations that have been agreed to by the Fed, well understood, and the industry as well down the line to make sure this October we know what those rules are. And now we are going to have our friends in the majority party to overlay new rules that empower trial lawyers that will narrow choices, lessen credit, and increase costs. There has got to be some balance.
Mr. Speaker, I would argue today that notwithstanding the gentleman from Massachusetts (Mr. Frank) and the gentleman from Alabama (Mr. Bachus) and the gentleman from Texas (Mr. Hensarling), who has been mentioned a couple of times, have been very active for 6 or 8 years on this issue. Doing nothing would not be an accurate description. Saying that Republicans blocked attempts would not be a correct assertion. But saying that there has been work in the aftermath to try and do the right thing that is right on target already exists and we don't need to add to that would be equally true also.
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Mr. SESSIONS. Mr. Speaker, I am very pleased to engage the gentleman, and I appreciate him doing this. But, Mr. Speaker, my point would be the gentleman is trying to get into a political argument especially about how I may or may not have voted. He supposes I would have voted against the bill because it was a reasonable bill. I think that is what he is trying to say. I don't know how I voted on the bill, this section of the bill, at all.
What I would say to you is that you can't have it both ways. You can't say Republicans did nothing and then say, oh, Republicans, a handful of Republicans did something, but the vast majority of Republicans voted against it. That is, Mr. Speaker, trying to take what we are attempting to do here today, making public policy wise choices in the open, and by the way, Republicans are for doing this on the floor to talk about every amendment, to talk about the processes, to talk about the expectations of performance, to talk about what we expect the laws to do; and now he is trying to have it both ways to say, I guess it was a Republican idea, but most Republicans opposed it. It was a Republican idea by the ranking member of Financial Services, Spencer Bachus, who is a Republican, and who moved forth in those responsibilities an opportunity for something to become law. And it is obvious the gentleman, Mr. Frank, at the time was willing to engage in that, and that should make all of us feel good.
But I don't think we should turn around later and diminish that effort just because we want to make political points here today. And I don't mind making political points because here are the political points I would make: today we are going to narrow choices, lessen credit, and increase costs for borrowers and taxpayers. We are going to provide at a time when our country should be trying to lessen spending of money, we are going to provide an extra $140 million for people to go sue in court to overload our courts when resolution should be done by the legislation, but in fact also by the rules that are already provided by the Federal Reserve.
Republicans aren't here just to say no and to come to fight. We are after good public policy. We are after public policy that will work for people and a marketplace so there are lenders in every single community.
This bill that we are here today on will lessen, take away the number of qualified lenders who are available because now the costs are going to go up, fewer consumers will be able to get the loans and will pay more money because now we are going to give from the Federal Government $140 million to go sue somebody.
Legislation should be about finding a balance. I'm not opposed to remedies. I'm not opposed to courts and people litigating for the right reasons. I am simply not interested in now that it is over, trying to find a way to beat up people when resolution, keeping people in their homes, finding a way for that balance to work.
And today we will give full credit to Mr. Frank. He wants political credit; let's give him full political credit. All the Democrats will get full political credit today for doing essentially two things: number one, reworking what is already laws that are going to begin in October by the Federal Reserve; and, secondly, we will give you credit for these principles, narrowing choices, lessening credit, and increasing costs for borrowers and taxpayers. Making it more difficult at a time when America and Americans need the chance to go get a home loan, we are now going to add more rules and regulations to the mortgage industry.
This is exactly where Republicans do draw the line. We are for well-balanced, well-meaning, thoughtful articulation on this floor to make sure we understand what we are doing. We are not for suing people and not for adding costly rules and regulations. The industry has already told us that is exactly what the intended outcome of this bill will be.
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Mr. SESSIONS. Mr. Speaker, I appreciate this one-sided debate about how bad Republicans are, how we did nothing; but I believe the gentleman has already well answered that question and heard it that Republicans in fact have been proactive during this entire time.
Mr. Speaker, I include for the Record a letter dated May 5, 2009, from the Mortgage Bankers Association whose title is ``Investing in Communities.''
MORTGAGE BANKERS ASSOCIATION,
Washington, DC, May 5, 2009.
Hon. NANCY PELOSI,
Speaker of the House, U.S. House of Representatives, Washington, DC.
Hon. JOHN BOEHNER,
Republican Leader, U.S. House of Representatives, Washington, DC.
DEAR SPEAKER PELOSI AND LEADER BOEHNER: On behalf of the 2,400 members of the Mortgage Bankers Association (MBA), we are writing with regard to H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, a bill the House is scheduled to consider later this week.
Congress is facing a once-in-a-generation opportunity to improve the mortgage lending process. If carefully crafted, improved regulation is the best path to restoring investor and consumer confidence in the nation's lending and financial markets and assuring the availability and affordability of sustainable mortgage credit for years to come. At the same time, if regulatory solutions are not well conceived, they risk exacerbating the current credit crisis.
While we applaud the comprehensive nature of H.R. 1728, we believe this legislation misses the opportunity to replace the uneven patchwork of state mortgage lending laws with a truly national standard that protects all consumers, regardless of where they live.
MBA is also concerned with the bill's requirement that lenders retain at least five percent of the credit risk presented, by non-qualified mortgages. While this provision was improved by the Financial Services Committee, it will still make it highly problematic for many lenders to operate, particularly smaller non-depositories that lend on lines of credit. It will also necessitate that larger lenders markedly increase their capital requirements. Both results will narrow choices, lessen credit, and force an inefficient use of capital at the worst possible time for our economy.
Finally, MBA believes the bill's definition of ``qualified mortgage'' is far too limited and will result in the unavailability of sound credit options to many borrowers and the denial of credit to far too many others. We urge the House to expand the definition and to provide a bright line safe harbor so that if creditors act properly, they will not be dogged by lawsuits that increase borrower costs.
MBA would like to commend the House for the priority it has given to reforming our mortgage lending process. It is imperative that we continue to work together to stabilize the markets, help keep families in their homes and strengthen regulation of our industry to prevent future relapses.
Sincerely,
JOHN A. COURSON,
President and Chief Executive Officer.
DAVID G. KITTLE, CMB
Chairman.
I would like to read from that letter signed by John Courson, president and chief executive officer, and David G. Kittle, chairman, and these are people who are in the business, and they say this bill will ``narrow choices, lessen credit, and force an inefficient use of capital at the worst possible time for our economy.''
So the argument that I'd make is that evidently the Fed--their rules were not accused of this. They were seen by the industry and by consumer groups as the right thing to do. We're worried about it.
So we'll give the gentleman full credit. The Democrats get full credit for bringing the bill to the floor today. I don't know who's going to vote for it and I don't know who's going to vote against it, but what I will say is let the facts of the case be very evident--narrow choices, lessening credit, and a force of an inefficient use of capital at the worst possible time for our economy.
Republicans are for balance. We are not for and would not support something that would be described by the industry as bad for consumers.
I reserve the balance of my time.
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Mr. SESSIONS. I want to thank not only the gentlewoman for extending the time, but also the gentleman, Mr. Frank, for engaging in this issue.
Mr. Speaker, testifying to the Financial Services Subcommittee on behalf of a coalition of consumers, advocacy groups, and labor organizations from across the country, Margaret Saunders of the National Consumer Law Center, called this bill ``convoluted and virtually impossible as a mechanism to solve the current problem.'' Convoluted and virtually impossible as a mechanism to solve the current problem.
We need to go back to the drawing table and remove many of the political provisions which will only cause further damage in the marketplace. It will further damage a fragile mortgage market that is in need of greater certainty, not more uncertainty.
This afternoon in the Rules Committee, my friends on the other side of the aisle will have an opportunity to allow for quality changes to the underlying legislation, opportunities for Members of this body to hear debate and vote on amendments. I encourage an open rule, which will be an open and honest discussion just like we've had here on the floor today, on the discussions that the House will handle tomorrow.
With respect to the 50-plus amendments to the legislation that were submitted to the Rules Committee yesterday morning, we'd like to see them all be made in order. Congress has an opportunity to provide for quality, meaningful returns, and to help the current mortgage lending process, and it is my hope that my Democrat colleague friends will allow for that process.
With that, I oppose this rule and look forward to a better rule tomorrow. As always, I think that a better rule tomorrow, an open rule, will yield not only the intended results, but will help the American people to know what we intend to do with this legislation.
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