Massive Resistance to Mortgage ReformNovember 7, 2007 - by Donny Shaw
Congress is taking its first steps towards responding to the mortgage market meltdown that is threatening to throw us into a recession, but the mortgage industry and Blue Dog Democrats are putting up a tough fight to stop it.
H.R.3915, Mortgage Reform and Anti-Predatory Lending Act of 2007, was voted favorably out of the House Financial Services Committee on Monday and is expected to make it to the floor of the full House later this week. Unlike some other bills pending in Congress right now, this one isn’t an attempt to repair the current crisis. It’s designed to make changes to the system to prevent similar crisises from occurring in the future.
According to the democratic staff on the Committee, the bill would “create a licensing system for residential mortgage loan originators, establish a minimum standard requiring that borrowers have a reasonable ability to repay a loan, and will attach a limited liability to secondary market securitizers,” among other things.
Another important provision would allow courts to restructure mortgages for homeowners that have been forced to declare bankruptcy because the value of their home has dropped below the amount of debt they took on with their mortgage.
This bill has been getting a lot of buzz in the blogs, mostly from mortgage industry bloggers and mostly negative. In general the industry sees it as implementing undue regulations that could damage the free market’s ability to enforce responsibility on the behalf of borrowers. “Rather than let the instructional nature of failure naturally correct the market, the regulation would contract the industry so as to dissuade innovation and competition,” Brian Brady writes on the Blood Hound Blog. If you look through the blog coverage that’s rolling in on OpenCongress, you’ll see a lot of similar arguments.
The Blue Dog Coalition of moderate and conservative Democrats, who pride themselves on forging policy middle-grounds, have come out against the bill because they fear it could stand in the way of implementing the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that they helped pass in 2005. “A goal shared by Blue Dog supporters of BAPCPA is ensuring that those with the ability to pay back at least some of their debts do so, while preserving access to the bankruptcy system. Unfortunately, those who abuse the bankruptcy system end up penalizing other Americans who choose to work hard and pay their debts, and who still find it a challenge to obtain credit,” they wrote in a letter to the committee chairmen who have been working on moving the legislation forward.
Besides the blog and news coverage that OpenCongress has been gathering on this bill, the two big New York papers have published competing editorials that are required reading for understanding the issues raised by this bill:
The New York Times: Putting an End to Abusive Lending
The Wall Street Journal: A Sarbox for Housing