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House Debates Mortgage Reform and Anti-Predatory Lending Act

UPDATE: The bill has passed, 291-127, read further details of the bill in our current legislation section.

Today the House will debate the Mortgage Reform and Anti-Predatory Lending Act of 2007, H.R. 3915, sponsored by Rep. Brad Miller (NC-13). This comprehensive anti-predatory lending legislation will help stop bad loans from being made in the first place — making sure that consumers get mortgages they can repay, strengthening consumer protections against reckless and abusive lending practices, and giving consumers the ability to see redress.

The New York Times discussed the bill this morning:

The House is set to take up new regulations for mortgage issuers as soon as Thursday while lawmakers are putting together a separate measure that would allow bankruptcy judges to ease the financial squeeze on some who face losing their homes.

The article later describes some details of the bill:

The first measure scheduled to be considered by the House is focused more on curbing future lender abuses than providing relief for those now at risk of losing their homes. It would set new standards for ensuring that borrowers have a reasonable ability to repay the loan, establish new licensing requirements for mortgage brokers, put new restrictions on incentives for steering borrowers into riskier loans and provide some liability for financial institutions that trade in faulty mortgages.

Representative Barney Frank, the Massachusetts Democrat who is chairman of the Financial Services Committee, said the bill could be the first major consumer protection measure to emerge from the current Congress, with economic anxiety trumping opposition from powerful industry lobbying groups. “I think the consumers can beat the industry,” Mr. Frank said.

Though the bill has some Republican support, Republican leaders have joined mortgage industry groups in raising serious reservations about the plan.

Representative Adam H. Putnam of Florida, chairman of the House Republican Conference, equated the bill with using “a sledgehammer on a gnat,” saying it was an exaggerated response to a problem afflicting a relatively small percentage of people.

Chairman Barney Frank of the Financial Services Committee spoke on the rule:

Chairman Frank: “I do want to say we are here dealing with an issue, subprime mortgages, that is the single biggest contributor to the greatest financial crisis the world has seen since the Asian crisis of the late 90′s. We are in a very difficult situation now in the financial markets, and wholly unregulated subprime mortgages, unregulated by the originator, and then unregulated in the secondary market, has given rise to this.”

Rep. Keith Ellison (MN-05) spoke during full debate:

Rep. Ellison: “No doubt, the American dream has always been homeownership, and yet with exploding ARMs, with prepayment penalties, and other such exotic products, that dream of homeownership has become an American nightmare. Mr. Speaker, I’d love to be able to take every Member of this body on a tour through north Minneapolis. There are blocks in my community where every other house is boarded and vacant. The fact is, is that for the people who have made every single mortgage payment and never late, they suffer because of this crisis because their home values have been seen dropping and plummeting. We’ve seen our cities suffer.”

Rep. Brad Miller (NC-13), the primary sponsor, spoke during full debate:

Rep. Miller: “The late Ned Gramlich, a well regarded former Federal Reserve Board Governor asked why was it that the riskiest loans were being sold to the least sophisticated consumers? It was a rhetorical question, Mr. Speaker. He knew the answer. He knew those loans were being sold to people to take advantage of them, to separate from middle class homeowners more and more in equity in their home to trap them in a cycle of having to borrow and borrow again, every time they borrowed losing more of the equity in their homes”

Extended transcript:

Rep. Miller: “Now, several speakers have said that they think the consumers should make choices, there should be a variety of choices available to consumers. Sometimes they say that this bill will shut down market innovation. Americans are for innovation, Mr. Speaker, just as they are for reform. Americans are fundamentally reformers. So politicians have figured out to call everything they do a reform. However obviously contrary to the public interest it is. And now American business has learned to call everything they do an innovation, regardless of how bad it hurts consumers. I can think of many wonderful innovations. When we think of an innovation we think of a scientist in a lab coat coming up with new products. Mr. Speaker, I’m now the age my father was when he died of a heart attack in 1965. There wasn’t a thing we could do to help people with heart disease in 1965. But I am on a cholesterol medicine, because I inherited from my father high cholesterol, that I hope will allow me to outlive my father. I think that drug is an important innovation, I’m glad we have made that innovation. Mr. Speaker, this necktie is an innovation. 10 years ago you could not buy a silk necktie that was stain resistant. And for those folks like me who tended to miss their mouth from time to time, the cost in new neckties in any given year was hundreds of dollars. But this tie has a nanotechnology process that causes liquids to bead up and roll off rather than soak in and stain. Mr. Speaker, this necktie is an important innovation to me. But what on Earth do we mean when we say that a mortgage is innovative? It means, simply, Mr. Speaker, that there is no end to the variety of terms, there is a proliferation of indecipherable terms that are not designed to help consumers.

“Alan Greenspan called them ‘exotic loans.’ Others have called them ‘toxic loans.’ The innovation is not really about allowing consumers to tailor narrowly the loan they get to their specific cicumstances. The late Ned Gramlich, a well regarded former Federal Reserve Board Governor asked why was it that the riskiest loans were being sold to the least sophisticated consumers? It was a rhetorical question, Mr. Speaker. He knew the answer. He knew those loans were being sold to people to take advantage of them, to separate from middle class homeowners more and more in equity in their home to trap them in a cycle of having to borrow and borrow again, every time they borrowed losing more of the equity in their homes.”

Financial Services Chairman Barney Frank mocks the Republican Motion to Recommit :

Chairman Frank: “But listen to this: lines 14 and 15, you must show a passport issued by the United States or a foreign government. Now what makes anyone think that people who are in the United States with a foreign passport are here legally? They have foreign passports from other countries. I think the problem is some on the other side have taken the word alien too literally. That is, they think that an alien is someone who is not from the earth, because someone who is in America illegally who is from the earth might have an Iranian passport or Venezuelan passport or a Burmese passport… I think the real estate industry, this is literally my speculation, real estate industry said to the Republicans, ‘Wait a minute, we make a lot of money selling to foreigners, don’t cut out the foreigners’ – but you forgot to say legal foreigners! …An American in a Real ID state who doesn’t have a passport can’t make it. But an Iranian with an Iranian passport, welcome to my home! here’s your mortgage! Now I understand the impulse to prevent illegal aliens from getting predatory mortgages, that’s a very kind thing that the Republicans want to do for them – but they don’t do it competently…”
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