More often than not, major banking bills are passed by Congress and sent to the President as the two-year Congressional cycle winds down in even-numbered years. Generally the seeds for legislative action are sown and nurtured during the First Session; if they bear fruit, then they are acted upon in the Second Session. As Members of Congress return to Washington for the Second Session of the 110th Congress, it seems likely that the pattern will be repeated.
Economic factors are unquestionably going to be primary forces driving the legislative agenda on Capitol Hill, and nowhere is that likely to be more evident than in both the Senate Banking and the House Financial Services Committees. House Financial Services Committee Chairman Barney Frank (D-MA) impressed many of his colleagues with his ability to forge bipartisan alliances and report out consensus legislation. During the First Session, the House approved and sent to the Senate a number of bills that originated in the House Financial Services Committee, including bills dealing with GSE reform, FHA reform, predatory lending, and industrial loan companies (ILCs).
The Presidential aspirations of Senate Banking Committee Chairman Chris Dodd (D-CT), which some believe impeded action on many of the House-passed bills that were sent to the Senate, will not be a factor in the Second Session. It is not impossible that the presidential aspirations of other members of Congress – particularly Senator Hillary Rodham Clinton (D-NY) – will impact the Senate Banking Committee’s agenda. On December 3, 2007 Senator Clinton wrote to Treasury Secretary Paulson outlining steps that she believes are needed to end the foreclosure crisis. They are:
- Impose a foreclosure moratorium of at least 90 days on subprime, owner-occupied homes
- Freeze the monthly rate on subprime adjustable rate mortgages, with the freeze lasting at least 5 years or until the mortgages have been converted into affordable, fixed-rate loan
- Require the mortgage industry to provide status reports on the number of mortgages it has modified. Senator Clinton has also called for the establishment of a fund of up to $5 billion to help hard-hit communities and distressed homeowners weather the foreclosure crisis.
FHA Reform: One area primed for action in 2008 is FHA reform. On September 18, the House passed and sent to the Senate the “Expanding American Homeownership Act of 2007” (H.R. 1852), a bill reforming a number of aspects of the Federal Housing Administration (FHA). Among other things, the House-passed bill:
- Authorizes zero and lower down payment loans for borrowers that can afford mortgage payments, but lack the cash for a required down payment.
- Authorizes more than double the current funding level for housing counseling, to help subprime homebuyers and borrowers late on mortgage loan payments.
- Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on such borrowers.
- Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.
- Authorizes up to $300 million a year from the bill’s excess profits for affordable housing, instead of returning such funds to the General Treasury.
- Raises FHA single family loan limits, which now bar loans above 95% of the median home price in each local area and shut FHA out of higher cost home markets. The amendment raises the FHA loan limit in each area to the lower of (a) 125% of the local area median home price or (b) 175% of the national GSE conforming loan limit. The amendment also retains the bill’s provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”
- Directs FHA to make available refinancing loans to existing qualified homeowners who are in default or at risk of default due to rate resets or mortgage market conditions, and authorizes lower down payments for such purpose.
A companion bill was introduced by Senate Banking Committee Chairman Chris Dodd on November 13. Entitled the “FHA Modernization Act of 2007” (S. 2338), Dodd’s bill passed the Senate by a vote of 93 to 1 on December 14. Since the Dodd and Frank bills differ in some significant details (ex., the Senate bill lacks the “affordable housing fund” contained in the House bill, and lowers the current 3% down payment requirement to 1.5% rather than limiting it as the House bill would), the differences will need to be reconciled by a conference committee and a final consensus package approved by the House and the Senate before it can be sent to the President to be signed into law.
GSE Reform. On May 23, 2007, the House passed and sent to the Senate the “Federal Housing Finance Reform Act of 2007” (H.R. 1427) by a vote of 313 to 104. Among other things, the bill would consolidate the Office of Federal Housing Enterprise Oversight (“OFHEO”) which under existing law is the primary regulator of Fannie Mae and Freddie Mac with the primary regulator of the Federal Home Loan Banks, the Federal Housing Finance Board (“FHFB”). The new regulatory body, which would have responsibility for the regulation and supervision of the government sponsored enterprises (GSE) of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, would be known as the Federal Housing Finance Agency (“FHFA”) and would have broad powers analogous to current banking regulators. This measure is currently pending in the Senate.
Affordable Housing Trust Fund. On October 10, 2007 the House voted 264 to 148 to pass and send to the Senate for consideration the “National Affordable Housing Trust Fund Act of 2007” (H.R. 2895). The trust fund would be paid via revenues derived from the GSEs and from the FHA mortgage insurance program, which the Secretary of Housing and Urban Development could then use to provide assistance to states, Indian tribes, insular areas, and participating local jurisdictions to increase the supply of decent quality affordable housing, especially for low-income, extremely low-income, and very poor families. The assistance could be in the form of construction, rehabilitation, and/or preservation of affordable housing units. This measure is currently pending in the Senate.
Predatory Lending: On November 15 by a vote of 291-127 the House voted to approve and send to the Senate the Frank-Miller-Watt “Mortgage Reform and Anti-Predatory Lending Act of 2007” (H.R. 3915). Designed to “combat abuses in the mortgage lending market, and to provide basic protections to mortgage consumers and investors,” among other things, if enacted into law the bill would:
- establish a federal “duty of care”;
- prohibit steering;
- require licensing and registration of mortgage originators (including brokers and bank loan officers);
- set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay;
- attach limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. (Individual investors in these securities would not be liable);
- expand and enhances consumer protections for “high-cost loans” under the Home Ownership and Equity Protection Act; and
- include certain protections for renters of foreclosed homes. H.R. 3915 is now pending in the Senate, along with the Home Ownership Preservation and Protection Act of 2007 (S. 2452), a companion bill introduced by Senate Banking Committee Chairman Dodd on December 12, 2007.
As the Second Session of the 110th Congress gets underway, these and other measures will all be in various stages of play.