The House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit, chaired by Shelley Moore Capito, R-W.V., on June 18 held the second in its series of hearings, titled "Examining How the Dodd-Frank Act Hampers Home Ownership," on the mortgage rules issued in January and amended last month by the Consumer Financial Protection Bureau (CFPB), an agency created under Dodd-Frank to take over consumer regulation from the banking regulators.
In general, these rules are designed to remedy some of the excesses in mortgage lending practices that contributed to the 2008 episode of the ongoing financial crisis. The key features are the Ability to Repay and Qualified Mortgage rules, which are intended to ensure that lenders have taken into account the ability of the borrower to repay the loan. These rules impose a limit of 3 percent on the points and fees that can be charged in order to remove the incentive for lenders to steer borrowers, particularly those from minority communities, to high-cost loans.
A more detailed explanation of the rules was provided in an earlier article
on the first hearing, which featured witnesses from the CFPB. The rule is very complex and reflects the complexity of the mortgage finance and closing processes.
At the big picture level, I pointed out in articles on the implementation, or "limplementation," of Dodd-Frank that it is a process of exempting all of the industry groups from the bill, a process that began before it was even enacted, and this is why three years go by and less than half of the mandated regulations have been promulgated by the so-called regulators, who themselves have close ties to the industry.
The ongoing financial crisis could have been contained a third of a century ago if the regulators had taken action to enforce capital standards on the large, "too big to fail" institutions that were already out of control. But instead, they promoted the expansion of risky financial products that generate fees for Wall Street and expose the economy to losses of roughly $15 trillion, equivalent to the entire gross domestic product of the United States.
With regard to the mortgage rules that were the subject of these hearings, the mortgage industry, dominated by the same too big to fail banks that control the financial services industry and have extended their dominance in the years since 2008, has decided it would be a good idea to portray itself as the victim, not the perpetrator, of the financial crisis and to take the position that the effect of proposed regulations would be to increase the cost and reduce the availability of credit to key constituencies.
The House Financial Services Committee is itself dominated by legislators with close ties to the industry, with both the chairman of this subcommittee and the ranking Democrat on the full committee married to bankers and most of the members of the full committee with other close ties to the industry.
The hearing featured proposals by key segments of the mortgage industry to vitiate the rules, and the proponents tout the bipartisan sponsorship of these measures. However, the issues in this field tend not to be partisan, so that the legislated agenda represents, in effect, a single party, which could be called the Housing Industry Party, or HIP.
To simplify the design of this hearing, the first three witnesses, Charles Vice on behalf of the State Bank Supervisors, James Gardill on behalf of the American Bankers Association and Jerry Reed on behalf of the Credit Union National Association, all presented essentially the same message — that the Ability to Repay and Qualified Mortgage regulations threaten their ability to continue to offer mortgage loans, because many of the loans they offer would not qualify, so in order to avoid potential liability, they would have to suspend or abandon the business. Oh, the sky is falling.
Their remedies call for exemptions from the rules, and most of the legislators are eager to accommodate the industry's demands by leaning on the CFPB to make further changes that would weaken the rules.
Next, Debra Still, chairman of the Mortgage Bankers Association, and Gary Thomas, president of the National Association of Realtors, testified. They represent the lobbies most affected by the 3 percent cap on points and fees contained in the CFPB rules. Still and Thomas contend that the rules discriminate unfairly against lenders who use affiliated entities to provide such closing services as title insurance and are in a position to benefit by using these related entities and charging additional fees to the borrower.
They have united behind H.R. 1077, a bipartisan bill that would remove these restrictions, just as the industry wants.
Finally, Michael Calhoun, the Democratic witness, is a consumer advocate from North Carolina who also runs a mortgage company. Calhoun, president of the Center for Responsible Lending, supports the regulations and charges that they are needed to prevent lenders from once again steering borrowers into risky and expensive products. He also warns that the chief beneficiaries of H.R. 1077 are the large, too big to fail banks that are in the best position to offer multiple products through affiliates that can run up the bill for borrowers.
The industry counters that consumers desire one-stop shopping, and the counter to that argument is that borrowers can be squeezed into using the lender's affiliates in hopes of gaining approval for the mortgage and enhancing their chances of getting the deal closed.
This debate is just beginning, and the intense campaign by some of the best-funded lobbies before some of the friendliest, most conflicted legislators will be played out in further hearings that are almost certain to culminate in legislation that will pass the House.
Whether the industry bill is ultimately enacted will depend primarily on the Senate, where supporters of Dodd-Frank, led by Sen. Elizabeth Warren, D-Mass., who conceived the CFPB, can be expected to offer more effective resistance than they will in the House.
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