WASHINGTON — As House Financial Services Committee chairman, Barney Frank has collected his fair share of critics.
But even opponents are applauding the Massachusetts Democrat's crafty stewardship of mortgage reform legislation.
"This went far too smoothly," said Rep. Patrick McHenry, R-N.C., who opposes the bill. "I don't like the outcome. I don't like the direction. I don't like the results. But he knows the process better than I think just about anyone does. This Congress, he will be the most successful legislator in the House, hands down, bar-none."
The behind-the-scenes story of how Rep. Frank passed the bill by a 291 to 127 margin offers a window into his style as chairman.
A broad range of sources paint a picture of how Rep. Frank, playing the role of benevolent dictator, secured wide-ranging support for a bill that seemed to have struck just the right mix of regard and scorn by interested parties.
Rep. Frank's goal for the bill was to extend enough protections and liabilities throughout the mortgage chain to force all market participants to behave more responsibly and cut off lending that enabled borrowers to overextend themselves. At the same time, it was crucial to him to allow the market enough flexibility to function. The strong vote of approval from the House was intended to send a message to the Senate that what he had created should become law.
"The fact that it comes with significant Republican support helps in the Senate," Rep. Frank told reporters after the financial services panel approved the bill Nov. 6. "I really do believe a bill like this is necessary to get the market back."
Rep. Frank wanted to strike a balance so that the legislation was neither labeled a consumer nor an industry bill, sources said. For several months, and at a quickening pace this summer and into the fall, staff aides to Rep. Frank and two other lead sponsors — Reps. Brad Miller and Mel Watt — invited in mortgage industry representatives, consumer and civil rights advocates, and regulators for rounds of closed-door discussions as they conceptualized the bill.
Industry lobbyists who participated in the meetings said they quickly sized up the situation and decided that Rep. Frank was on track to push whatever he wanted through the House, particularly given the rise in foreclosures. Despite some rumblings from individual banks, several lobbyists calculated the only logical course was to try to mitigate their chief concerns rather than oppose any legislation. "There is a recognition that something is going to be done, at least in the House. … People have a choice; you can just say 'no,' or you can try and participate in the process," said Floyd Stoner, the lead lobbyist for the American Bankers Association.
Sources said Rep. Frank's staff explained the general construction of the bill and offered outlines as concepts were hammered out. They forced participants to offer specific, constructive feedback by rejecting blanket opposition as unproductive, fostering debate on complicated points, and pushing back when they simply disagreed. They approached the situation as one would a business deal; they were candid about what was negotiable and what was not, they said.
"He expected logical arguments and good data. This is a dealmaking process," Mr. Stoner said, "and if you made a good case with good data, the chairman and his staff responded."
Though it is not unusual, particularly on significant bills, to collect input from all affected sides, several sources described Rep. Frank's plan of attack as a throwback to how Washington used to operate. Because it is much simpler to pass a one-sided, partisan bill in the House than in the Senate, bringing industry players into negotiations was a strategic decision. It was not essential to getting a bill passed, but it gave Rep. Frank the ability to make it bipartisan, boxing industry into a position where it was practically impossible to strongly oppose the legislation.
Jaret Seiberg, an analyst at Stanford Group, said Rep. Frank effectively inoculated his bill from real opposition.
"By going as far as he has and working with the financial services industry and with top Republicans on the committee, he is trying to make the bill bulletproof, so it's that much harder for anyone to stop it in the Senate," he said.
As they saw their concerns being addressed, industry participants grew increasingly more invested in the process. "By being a part of the discussion, there is a trust building. … It's not just having your voice heard but its being understood that makes a difference," said Scott DeFife, senior managing director of government affairs at the Securities Industry and Financial Markets Association.
Not everyone felt this was a good deal for the financial services industry. Rep. Tom Feeney, a conservative member of the financial services panel who opposed the bill, said the banking industry ultimately appeared to get caught in a quid pro quo.
"I believe that industry in their hearts hates this bill," he said in an interview. "They understand that if they say what they believe there may be a price to pay, and I think industry was probably given the choice: 'Look, you can either be part of the discussion, no guarantees you'll be happy with the result, but if you are going to be part of our discussions, you are not going to go out there and oppose our bill.' "
Rep. McHenry said industry should have opposed the bill harder early on. "They should have been stronger against it, and I think the outcome would have been better, far better," he said.
Some industry lobbyists supported the Republicans' perceptions. "Absolutely, he was buying us off," one said.
Rep. Frank made several other strategic choices. After the bill was introduced Oct. 22 with 15 Democratic co-sponsors, Rep. Frank sat down individually with senior Republicans on the committee and asked what he needed to do to get them on the bill, sources close to the situation said.
In some cases he was able to strike a deal. Most crucially, he won support from Rep. Spencer Bachus, the panel's ranking Republican, who had introduced his own, narrower bill in July targeting mortgage origination.
The entire first section of Rep. Frank's bill, setting up mortgage origination standards, was cut and swapped for the more specific provisions in Rep. Bachus' bill. The move not only satisfied some industry and regulator misgivings about imposing duplicative regulation on depository institutions but also simultaneously satisfied some Democrats' interests in requiring education and criminal background checks for broker licensing.
Some sections of the bill thought to be too subjective were changed to reduce fears it would create enhanced litigation risk. In response to concerns from regulators, a standard that would have required securitized subprime loans to stay under a 50% debt to income ratio in order to be free from securitizer liability was also struck.
Several other concessions — like added disclosures and counseling provisions — were made to secure the support of key Republicans including Reps. Deborah Pryce, Steven LaTourette, Michael Castle, Judy Biggert, and Shelley Moore Capito. "Frank was smart in how he went about it," said a Republican staff member. "He essentially went to several of the top-row members and had private meetings with them."
Rep. Frank was not able to get everyone he sought, however. Sources said he reached out to Rep. Richard Baker, the Republican who lost the ranking member spot to Rep. Bachus. The Louisiana lawmaker would not support the bill without a provision saying its origination and other standards preempted state consumer protection laws.
Limited preemption was a key ingredient in the balance designed to pacify all interested parties. Both consumer and industry groups deemed it crucial, with industry suggesting they would not support a bill without preemption and consumer groups generally wanting to preserve the right of states to go further.
To split the difference, Rep. Frank found what he felt was middle ground and held fast to that position. Provisions in the bill that would create securitizer liability preempted state laws, much to the chagrin of New York Gov. Eliot Spitzer and many other Democrats, and the rest of the bill's standards set a floor for states but allowed them to go further.
"There are people on the left who say you don't need any preemption at all," Rep. Frank said. "The problem there is, if you don't have any preemption at all, you don't get much of a secondary market."
Though more liberal Democrats like Rep. Maxine Waters, D-Calif., did not like even a limited preemption, some more moderate ones wanted a broader preemption provision. Rep. Paul Kanjorski, the committee's No. 2 Democrat, considered an amendment to make the bill preempt all state laws for at least seven years. Sources said Rep. Frank persuaded Rep. Kanjorski not to pursue the idea and instead let him add separate legislation governing appraisal standards. "Kanjorski was told not to go there," said a House aide.
Rep. Frank and his staff also held firm on other issues. Industry participants were told that another area of major concern — a section of the bill that would subject more loans to the high-cost protections of the Home Ownership and Equity Protection Act — was not up for debate.
The language was taken from a bill Reps. Miller and Watt introduced last year, which was opposed by industry representatives who feared it would essentially remove such loans from the marketplace (since lenders tend to avoid offering HOEPA loans). Sources said Rep. Frank did not want to change the provisions because he wanted to ensure his two original co-sponsors would remain supportive.
Though he won on that front, Rep. Miller later acknowledged he was disappointed by some of the compromises that were made to broaden support for the bill.
"There were a lot of things that I didn't get in the bill or had to kind of grind my teeth and accept," he said.
Ultimately, that appears to be the general feeling. Industry lobbyists were grateful for changes made in the bill to make it more workable but were not thrilled about adding rules to the mortgage business. Consumer groups, for the most part, took the opposite line: Though they wanted a reform bill, several said it did not go far enough.
Rep. Frank — acknowledging the dissatisfaction — said that complaints' coming from both sides proved the final product was sound. "I'm very proud of this bill, which I do not believe is supported in its entirety by any single member of this committee," he told colleagues during the Nov. 6 committee vote. "We have a national crisis to which we have to respond, and in this case I think it's important that we get a bill that makes significant improvements and can be signed into law. I believe we have such a bill … there have been some changes and some consensus."
As for how he got there, do not bother asking Rep. Frank himself. "There's no point in talking about what I do. If I talk about what I do and how I do it, then I can't do it," he told a reporter.
When pressed on the question, and told that even opponents grudgingly admired his strategy, Rep. Frank relented — but only a little. "I think you could say that, when asked that question, the chairman blushed modestly," he said.
