Today, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, held a hearing on “Mortgage Reform: A Comprehensive Review of the American Mortgage System.” The Subcommittee heard testimony from three panels, comprised of members from regulatory agencies, consumer groups and the mortgage industry, on their recommendations for revising H.R. 3915, “Mortgage Reform and Anti-Predatory Lending Act of 2007” (“H.R. 3915”). H.R. 3915 was passed by the House in November 2007, but was not introduced in the Senate and lacked support from the Bush Administration. In pertinent part, H.R. 3915 sought to amend the Truth in Lending Act by reforming mortgage practices and providing protections for mortgage consumers. The Subcommittee anticipates using H.R. 3915 as a starting point for new mortgage reform legislation that the House Financial Services Committee will consider in the coming weeks. Witnesses at the hearing included:

Panel 1

Panel 2

Panel 3

  • Mr. Michael Middleton, President and CEO, Community Bank of Tri-County, on behalf of the American Bankers Association
  • Mr. David G. Kittle, Chairman, Mortgage Bankers Association
  • Mr. Marc S. Savitt, President, National Association of Mortgage Brokers
  • Mr. Charles McMillan, President, National Association of Realtors
  • Mr. Jim Amorin, President, Appraisal Institute
  • Mr. Joe J. Robson, Chairman of the Board, National Association of Home Builders
  • Mr. Laurence E. Platt, Partner, K&L Gates, on behalf of the Securities Industry and Financial Markets Association

In his opening statement, Subcommittee Chairman, Luis V. Guiterrez (D-IL) noted that the goal of the hearing was to determine how to “create fair and prudent mortgage origination standards” to prevent the current mortgage crisis from occurring again in the future. Commenting on his disappointment that H.R. 3915 was not passed when initially introduced, Guiterrez stated: “I am disappointed that the White House and Senate did not share our sense of urgency in 2007 when the House first passed historic mortgage reform legislation. But I am confident that new leadership in the White House will help us move this year’s version of mortgage lending reform quickly through both chambers ….”

Rep. Jeb Hensarling (R-TX) articulated the government’s role in creating the current mortgage crisis by stating, “In looking down the road for mortgage reform we must understand how we got there. The easy money policies of the Federal Reserve exacerbated a housing bubble that otherwise couldn’t exist without them. A mortgage fraud ran rampant for a decade – on the lender side and the borrower side as well.” Hensarling set forth the following principles for creating successful mortgagee reform:

  • let competitive markets work;
  • ensure that the consumers have effective, but not necessarily voluminous disclosure;
  • create greater transparency;
  • make markets competitive not less competitive;
  • discontinue the government’s practice to “incent, mandate, and cajole” lenders into mortgage contracts with borrowers who are unable to afford their homes;
  • stop denying consumers choices they need to make informed decisions; and
  • ensure that responsible borrowers are not held accountable for the irresponsible actions by some lenders and borrowers.

During the first panel, Ms. Braunstein outlined the final rules for mortgage loans issued last July under the Truth in Lending Act (“TILA”) and the Home Ownership and Equity Protection Act (“HOEPA”), which established new regulatory protections for consumers in the mortgage market. Braunstein also testified on the Federal Reserve’s current efforts to improve consumer disclosures. Specifically, Braunstein was questioned on the need not to have “longer disclosures, but better disclosures.” Currently, the Department of Housing and Urban Affairs (“HUD”) requires that consumers receive separate disclosures under TILA and the Real Estate Settlement Procedures Act (“RESPA”). Braunstein stated that she has long been an advocate for a single disclosure. She noted that the Federal Reserve has previously offered to work with HUD to create a single page disclosure form and will continue to pursue this. She emphasized that consumer testing of these disclosures is critical to the success of the reform.

Mr. Antonakes, testifying on behalf of the Conference of State Bank Supervisors, recommended restructuring the financial regulatory system by:

  • recognizing the rights of states to protect consumers and affirming the state’s role in chartering and supervising financial institutions;
  • encouraging supervision that is customized to the size, scope and complexity of the institution and its risks;
  • assuring the promulgation and enforcement of consumer protection standards that are applicable to both state and nationally chartered financial institutions and are enforceable by locally responsive state officials against all such institutions;
  • encouraging a diverse universe of financial institutions as a method of reducing risk to the system, encouraging competition, furthering innovation, ensuring access to financial markets and promoting efficient allocation of credit;
  • supporting community and regional banks, which provide relationship lending and fuel local economic development; and
  • requiring financial institutions that are recipients of governmental assistance or pose systemic risk to be subject to enhanced safety and soundness and consumer protection oversight.

The second panel was comprised of members from various consumer groups. The witnesses stressed the need for responsible lending while focusing on the effect any legislation may have on traditionally underserved communities. Ms. Gordon testified that any legislation should “start from scratch” and urged that new mortgage reform legislation:

  • be simple and straightforward;
  • require that mortgage originators serve the best interests of consumers by putting them in appropriate products with sound terms and conditions;
  • require that secondary markets share responsibility in mortgage loan terms;
  • require mortgage servicers to attempt to save a home before foreclosing;
  • allow consumers to assert rights in a timely and meaningful way; and
  • allow states to protect residences quickly and meaningfully.

The third panel, comprised of members from the mortgage industry, supported responsible lending and mortgage reform, but expressed hope that any legislation continue to encourage competition. Mr. Kittle remarked that while the mortgage industry is not the “sole cause of today’s difficulties, our industry must be central to the solutions that restore faith in the market and protect future borrowers.” He also announced the Mortgage Bankers Association’s (“MBA”) plan to release a comprehensive proposal for reform. Last week, the MBA released a survey indicating a rise in mortgage delinquencies and foreclosures. Specifically, he testified that the plan will include the following principles:

  • consider mortgage lending reform in a comprehensive, rather than piecemeal, manner;
  • pay special attention to mortgage lending;
  • provide a rigorous new regulatory standard that protects consumers regardless of where they live;
  • provide a single set of consumer protection rules that are dynamic and able to quickly respond to new concerns;
  • set standards clearly defined to facilitate the flow of affordable capital into the mortgage market;
  • require regulated entities to pay the costs of regulation and enforcement at the federal and state level;
  • subject all players in the mortgage industry to consistent federal regulation, including rigorous licensing, education requirements, net worth and bonding requirements as well as regular review and examination;
  • improved transparency for borrowers; and
  • assure better resources for counseling, financial literacy and fighting mortgage fraud.