The House passed a broad overhaul of the nation’s mortgage laws in November. Similar legislation has been introduced in the Senate, but lawmakers have a difficult job ahead of them. They will need to hash out differences — and deal with strong industry opposition — before any measure becomes law.
Synopsis: As the housing crisis worsened this year, lawmakers scrambled to come up with an effective response. The collapse in the sub‑prime mortgage market emerged as a major culprit in the real estate slowdown. Millions of borrowers, many with spotty credit histories, have struggled to make higher monthly payments after low introductory rates on adjustable-rate mortgages reset upward.
Industry critics say lenders, including mortgage brokers, helped stoke the crisis by pushing borrowers into subprime loans they were never going to be able to afford.
To curb those tactics, Financial Services Chairman Barney Frank , D-Mass., shepherded a major mortgage regulation measure through the House. The bill would bring mortgage brokers — now regulated state by state — under a nationwide licensing registry, establish minimum standards for home loans and expand some limits on high-cost mortgages. It also would prohibit brokers from steering consumers into mortgages they are unlikely to be able to repay.
The measure also would subject mortgage securitizers — companies that package home loans into securities to be sold on the secondary markets — to greater liability if they buy and sell mortgages that fail to meet the bill’s standards. Frank tailored the bill to win support from GOP members and mollify critics, who said the measure could further constrain home buying in the United States.
Ultimately, the bill won 64 GOP votes, including a majority of Republicans from Ohio and Michigan, states hit by mortgage troubles.
In the Senate, Christopher J. Dodd , D-Conn., chairman of the Banking, Housing and Urban Affairs Committee, introduced a bill (S 2452) in December generally similar to the House measure. It would establish a series of minimum standards for sub‑prime mortgages, including a requirement that lenders demonstrate that prospective borrowers have the ability to repay the loans. In some ways, Dodd’s bill is tougher than the House measure. It would establish liability for the investors who buy mortgage-backed securities, while the House bill would place liability on the companies that package the securities. The House bill would pre-empt potentially tougher state measures on securitizer liability; the Senate measure would not.
In recent years, investors such as hedge funds and pension funds have become the primary holders of residential mortgages, including sub‑prime loans. The boom in securitization — in which a lender packages loans into securities and sells them in the secondary market — means many loans are no longer owned by banks or mortgage brokers. Dodd’s bill would provide a “safe harbor” for loan holders if the underlying mortgage meets the bill’s standards.
