Providing For Consideration Of H.R. 1728, Mortgage Reform And Anti-Predatory Lending Act

Floor Speech

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Mr. SESSIONS. Madam Speaker, I yield myself such time as I may consume.

I rise today in opposition to this rule and to the underlying legislation. This structured rule does not call for the open, honest debate that has been promised by my Democrat colleagues time and time again; yet here we are again discussing the mortgage reform bill for the second day.

It is essential to provide for more transparency and accountability in the lending process, but there is also a laundry list of important issues that face this Congress. And all this week we will have but one bill on the floor of the House of Representatives to debate. I think that's unfair to the American taxpayer when there is much work to be done.

Today not only will we be discussing the flawed underlying legislation, which is already addressed in Federal statute, as we spoke about yesterday being on the floor, that Federal Reserve has already issued the rules and regulations as a result of feedback from industry last year, but what we are here to do is to try to redo that to put the majority's mark on that legislation, which already takes care of the problem.

But this legislation that we're going to handle again today limits choice, reduces credit, and increases costs to consumers and taxpayers at a time when the effort should be about making home mortgages more reliable, least cost conscious, and making sure that consumers would be able to have an opportunity to have a chance to have a home. But what we are going to do is, by allowing a patchwork of State laws to confuse the system, we are going to now create qualified mortgages which require lenders to hold 5 percent credit and creates a $140 million slush fund for trial lawyers. So what we are going to do is limit choice, reduce credit, and increase costs, and make sure now there is a slush fund for trial lawyers to sue the same companies that we were trying to encourageto lend to the marketplace so people could have money.

Madam Speaker, you will also hear about the amendments that our Democrat majority has made in order and failed to make in order today, no matter how substantive those amendments were.

We have heard the number of amendments that were made in order. My good friend knows that there were about 20 Democrat amendments that were put into the manager's amendment. So the 8-5 ratio is a little bit deceptive. It should be 8 plus 20, it's 28 versus 5 Republican amendments.

I offered two amendments in the Rules Committee last night, and both were struck down on party line vote--I guess that's no surprise. One was to limit trial lawyers access to taxpayer funds, and one was to ensure organizations like ACORN or any organization that receives money from the Federal Government, are more transparent and accountable with any government funds they receive.

At the end of 2007, the Board of Governors of the Federal Reserve undertook careful review of the abuses in the mortgage process system, and they took public comments, held public hearings across the country. And after careful deliberations, they finalized new comprehensive mortgage rules. These rules are going to take effect 5 months from now in October.

So not only are we spending all of 1 week on one piece of legislation, but the necessary regulations already exist in Federal statutes, and companies all across this country are already aiming at implementing those rules and regulations being ready for October.

This legislation fails to address the uneven patchwork of state mortgage lending laws and leaves lenders and consumers with unfair and confusing laws where the costs will ultimately be borne by customers. While this legislation attempts to establish is a new class of loans called qualified mortgages which will enjoy safe harbor and exemption from further restrictions in this bill, this will ultimately limit consumer choice on mortgages and unduly burden the mortgage industry, essentially excluding numerous safe and affordable mortgage products that serve and have been good to borrowers as well.

Madam Speaker, the Democrats are here today to say that they are on the side of the consumer and the borrower, even if it limits choices and raises interest rates for every single consumer that chooses to use this avenue to buy a home. Mr. Michael Menzies, on behalf of the Independent Community Bankers Association, in committee hearings on April 23, 2009, stated, ``Lots of this legislation simply increases our cost of doing business rather than helping us do a better job with our customers.''

Another regulation that will narrow choice, lessen credit and increase costs for borrowers and taxpayers is the lender risk retention provisions requiring lenders to retain at least 5 percent of the credit risk presented by all loans that are not deemed qualified mortgage. While I do believe that it is important to have some ownership in your investments, these far-reaching requirements would make it impossible for many lenders to operate, especially small and local lenders.

With the current economic crisis and all the efforts to inject capital into the financial services sector, why would we want to limit the use of capital and threaten to further impair banks' abilities to lend? Madam Speaker, this is not a solution for the ailing economy.

In addition, this legislation directs HUD to establish a brand-new $140 million slush fund for legal organizations to provide a full range of foreclosure-related services. Madam Speaker, my friends on the other side of the aisle actually take these steps simply to fund trial lawyers in this legislation.

If this doesn't force a flood of litigation, I really don't know what will. And Margot Saunders of the National Consumer Law Center, a consumer-advocate organization, said on April 23, 2009, in the Financial Services hearing, ``We have tried to propose repeatedly that you draft a simple bill that creates market-based incentives for enforcement rather than litigation opportunities,'' and I might say, which is full in this bill.

In other words, what we are doing is looking for paying lawyers to come and do what we should do here in this body with thoughtful, honest, straightforward legislation, which is why I offered an amendment in the Rules Committee last night, that of course was defeated on a party-line vote.

Madam Speaker, I include the amendment in the Record.

Amendment to H.R. 1728, as Reported Offered by Mr. Sessions of Texas

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Mr. SESSIONS. Madam Speaker, we began this debate and discussion yesterday where we were trying to talk about the impact of this bill and what feedback would come as a result of hearings that Chairman Frank did have, and one of them, one of the outcomes of that, was a letter dated May 5, 2009. The letter comes from the Mortgage Bankers Association, one of the primary impacting organizations and, certainly, they are there in communities to serve on behalf of the American people for people's housing needs.

Madam Speaker, I would submit for the Record a letter that was sent to Speaker Pelosi and Leader Boehner about their feedback about this legislation.

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.

Madam Speaker, what this says is that not only are they concerned about this legislation, but they say that this will result in narrow choices, lessening credit and force an inefficient use of capital at the worst possible time for our economy.

So the feedback that came directly to Members of Congress from people representing those that are in the business that have come face-to-face with consumers every day and who understand the needs of the marketplace, point blank have said narrow choices, which means fewer people will have fewer choices that are available to them, lessen credit, which means that there will be less money that is available in the marketplace for people to come and get a loan, and it will force an inefficient use of capital at the worst possible time for our economy.

Madam Speaker, I do understand that in Washington we're smarter than everybody else on a regular basis, but it seems like, to me, that the people who are providing the feedback, who really are with consumers and are trying to provide a product, that we would listen to them and attempt to change the bill. That's not what happened.

So the mortgage bankers are here saying, We have got a problem with the legislation that we're trying to pass today. One would think that Members of Congress would listen and reject this bill.

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Mr. SESSIONS. Madam Speaker, at this hearing that was held about this bill, a lot of feedback was provided by the marketplace--people who were impacted the most; people who every day are in front of lenders and trying to get people in homes.

Part of the feedback was provided from the American Bankers Association. I'd like to insert into the Record a letter related to that meeting and this legislation.

AMERICAN BANKERS ASSOCIATION,

Washington, DC May 6, 2009.
To: Members of the House of Representatives.
From: Floyd E. Stoner, Executive Vice President, Government Relations and Public Policy.
Re: H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009.

I am writing on behalf of the members of the American Bankers Association regarding H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, which the House of Representatives is scheduled to consider beginning on Wednesday, May 6, 2009.

H.R. 1728 is far-reaching legislation designed to prevent a recurrence of the problems in the subprime market that have harmed many American homebuyers. We appreciate that this legislation seeks to address the source of most of these problems, the loosely regulated and largely unexamined mortgage originators operating outside of the regulatory structure within which federally insured depository institutions function.

However, we are concerned that this major legislation can have a negative impact on both insured depository institutions and credit-worthy borrowers seeking to buy homes--impacts which have the potential to impair economic recovery. In considering any new legislation, it is critical to recognize the significant regulatory and structural changes that are already underway in the mortgage industry that will provide much greater protections to consumers. It is essential to recognize that the further changes proposed in H.R. 1728 will be cumulative to the changes already being implemented under revisions to Truth in Lending Act, Real Estate Settlement Procedures Act, and Home Mortgage Disclosure Act regulations.

We have worked with the Financial Services Committee and are pleased that a number of concerns were addressed either prior to, or during, Committee consideration of the legislation.

While we greatly appreciate the comprehensive, inclusive consultation that has gone into the drafting process so far, and the desire to avoid unduly restricting credit, we remain concerned that the bill still, in our view, needs serious work.

We plan to work with the Congress as the legislation moves forward to clarify additional areas of concern. To that end, we offer the following comments.

Safe harbor: The legislation creates a category of ``qualified mortgages'' which are given a safe harbor from the expanded liability of the legislation. ``Qualified mortgages'' are also exempt from certain other key restrictions in the bill, including the risk retention requirements. While the very narrow safe harbor included in the original bill has been expanded beyond just 30 year fixed rate loans, we are concerned that it is still far too narrow. An amendment adopted during Committee consideration of the bill expanded the safe harbor to include fixed rate loans of terms other than 30 years, as well as some adjustable rate mortgages. However, the language on adjustable rate mortgages (ARMs) remains too restrictive. To qualify for the safe harbor, ARMs would have to be underwritten to the maximum rate possible during the first seven years of the loan.

Consider the example of a five year ARM with the initial rate set at 5 percent and with caps on increases in later years set at 2 percent per year. Under the pending bill, this loan would have to be underwritten at a rate of 9 percent (because in the seventh year of the loan the rate could--but by no means is likely--to go to 9 percent for that year). In this instance, even though the borrower could not pay more than 5 percent for the first five years of the loan, and not more than 7 percent in the sixth year, they would have to be able to afford the loan at 9 percent for all seven years in order to qualify. This will shut the door to affordability to many borrowers. We strongly recommend that this provision be altered to reflect a more realistic underwriting standard.

Similarly, we are concerned that to be included in the safe harbor, loan points and fees must be limited to not more than 2 percent of the loan amount. The bill should be clarified to ensure that bona fide discount points paid by a borrower to reduce the interest rate on a loan are not included in this calculation. The relevant threshold in this instance should be the annualized percentage rate (APR) as currently defined in regulation implemented pursuant to the Truth in Lending Act. We also believe that the 2 percent cap should not be statutory, but instead should be determined by the federal bank regulators to accommodate small dollar loans which may carry fixed fees taking the loan beyond a 2 percent cap. The bank regulators are better suited to determining the appropriate cap on fees paid in association with different loan products.

Risk retention: We are pleased that the bill was modified during Committee consideration to provide the bank regulatory agencies with the authority to exempt loans (beyond those exempted under the safe harbor) from the 5 percent credit risk retention provisions of the bill. While this expanded regulatory discretion is a step in the right direction, we remain firm in our conviction that federally regulated and examined insured depository institutions should be exempt from risk retention requirements. Insured depositories already have significant risk retention--and the capital to back that risk. Loans sold by insured depositories into the secondary market frequently include recourse agreements, so that if there is an underwriting or other error or omission, the depository can be forced to buy the loan back. Again, because insured depositories have strong capital positions, they can and do buy back recourse loans. The same cannot be said of other lenders who lack capital. For these lenders, greater risk retention is needed. For insured depositories, it is not. We recommend excluding insured depositories from the risk retention provisions of the bill.

Uniform national standards: We are gravely concerned with the enforcement provisions of the bill, especially in light of an amendment adopted in Committee which would grant state attorneys general enforcement authority over the Truth in Lending Act provisions added by the bill. The current language of the bill will lead to conflicting enforcement actions between state attorneys general and federal banking regulators. It will cause confusion to consumers and lenders alike and will generally undermine the regulatory framework for mortgage lending in the nation. A confusing enforcement scheme is likely to harm borrowers and provide the unscrupulous with new opportunities. At a minimum, we urge you to adopt clarifying provisions which would give the federal banking regulators notice of a state attorney general's intention to act, and allow the federal regulator a reasonable time to act before the state is allowed to do so. Such a framework is needed to bring order and clarity to the process.

We anticipate a number of amendments during floor consideration. As a general rule, we oppose amendments which would increase regulatory burden on banks and their employees, and support amendments which recognize the role that regulated, insured, and examined institutions play in protecting consumers' interests and in providing products and services which benefit our national marketplace.

We appreciate the working relationship that has been established between the Members of the Committee and all interested parties, and we shall continue working with Members of Congress as this legislation moves through the legislative process.

This letter goes to all Members of the House of Representatives. So each of my colleagues openly received a copy of this. It is from Floyd Stoner, executive vice president with the American Bankers Association.

Here is what their conclusions are after seeing the legislation. They are ``concerned that this major legislation can have a negative impact on both insured depository institutions and creditworthy borrowers seeking to buy homes--impacts which have the potential to impair our economic recovery.''

So what the American Bankers are saying is that the answer, the antidote, the medicine that now-Speaker Pelosi is coming up with will actually have the potential to impair economic recovery.

So every single Member of Congress got this letter. We will find out today what their views are. But the American Bankers Association also said, and pretty much ends their letter by saying: ``The bill still, in our view, needs serious work.''

We should reject this bill. We should understand that the people who are engaged in trying to make sure people have loans and are worried about our economy are saying it not only has the potential to impair economic recovery, but the bill needs serious work.

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Mr. SESSIONS. I yield myself such time as I may consume.

I appreciate the gentleman coming down and talking about how Republicans are to blame for all this mess, but I'd like to harken back to September 25, 2003, at a hearing that was held back in the Financial Services Committee.

Our current chairman, Barney Frank, who's a very thoughtful and diligent chairman, thoughtful on the ideas of the entire industry, said, ``I don't think we face a crisis.'' This is 2003. ``I don't think we face a crisis. I don't think that we have an impending disaster. We have a chance to improve regulation of two entities I think that, on the whole, are working well.''

So perhaps the most thoughtful person in the country, certainly in this Congress, back on September, 25, 2003, is saying, ``I don't think we face a crisis, and I don't think we have an impending disaster.''

Further, he said, ``I don't see any financial crisis. You can always make things better, but I do think we should dispel the notion that we are here today because something rotten has gone on.'' That was Barney Frank. That was Barney Frank at the hearings.

So the gentleman wants to blame Republicans. And yet, here we had the lead, very thoughtful and articulate, Democratic ranking member, arguing that there was nothing wrong and nothing was about to happen. Yet, today, what we have is another answer: Oh, I'm sorry. We forgot to say, and we know that the Fed has already taken care of this problem with rules and regulations that are already known and will be in place in October.

Here we have now legislation to re-address that issue. And the answer that comes back from the marketplace is, This legislation limits choice, reduces credit, and increases cost to consumers and taxpayers.

I would have assumed that if there was nothing wrong in 2003, and now we corrected it with a series of hearings, including the Federal Reserve, that we would want to help the marketplace--not limit its ability, its choices, and put exposure to taxpayers. That's why we're opposed to this.

We're opposed to it not because we're trying to stop it, but because we're trying to make it better. We think what should have been made better has already been done by the Fed. This Congress knows it.

Every single Member of Congress got a letter to their office directly from the American Bankers Association saying serious flaws in this legislation.

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Mr. SESSIONS. Madam Speaker, I appreciate the gentleman. By the way, the gentleman and I are friends. We are speaking about policy here, disagreements.

I would say to the speakers that have come on the Democratic side today, it sounds like an argument they are having within their own party. Everybody is trying to blame the Republican party and George Bush for what happened; yet, if the gentleman didn't like 2003, I will go to the end of 2004, December 16, 2004, if we need to get more current. And I will quote the gentleman, the chairman of the committee:

``The SEC's finding that Fannie Mae used incorrect accounting is serious and disturbing. While these improper decisions by Fannie Mae do not threaten the financial soundness of the corporation, and should have been used by anyone in an effort to cut back on Fannie Mae's housing efforts, they do not reveal troubling deficiencies in its corporate governance.''

All of these signals that came to Members of Congress from people who were on the committee, including one of the most distinguished members of the committee, said: We don't have a problem. There is no soundness problem. There is no weakness problem. I don't see a financial crisis. Sure, we can always do things better, but I think we should dispel the notion that we are here today because there is something that is rotten that has gone on.

Well, why are we trying to extend blame? Why don't we just talk about the problem that we are in today? And if we are going to do that, my notion would be that what we should do is listen to the people who are in the banking business saying this is a problem. This bill has serious flaws.

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Mr. SESSIONS. Madam Speaker, in closing, I would like to thank the gentleman from California and each of the Members from his side who have participated today, including the gentleman, Mr. Frank. I would like to stress that while my friends on the other side of the aisle claim to be protecting consumers and have said that people want to delay this legislation, that is not true. It has already taken place. Whatever we need, the Federal Reserve has already done.

What we will say is that what this legislation is doing is benefiting trial lawyers with tax dollars. And perhaps more importantly, it is causing this circumstance to be aggravated and to be worsened.

We already understand there will be less credit that will be available. This will raise the costs of loans and mortgages that people will want to receive. At a time, especially, when the economy needs help, this will harm the economy. And that is directly what the American Bankers Association has said in a letter to every single Member of Congress. So I hope every single Member should hear this. They need to be talking to their staff, ``hey, did that letter come in on this legislation that we are handling today?'' And that letter says, ``serious flaws, serious flaws, bigger problem.''

We need to be providing for jobs. We need to be encouraging economic growth. We need to encourage investment. And this legislation does not accomplish that.

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