WASHINGTON — The House Financial Services Committee passed a mortgage reform bill 49 to 21 on Wednesday, sending it to the full House for consideration next week.
After two days of debate in which GOP efforts to weaken or narrow the bill mostly failed and eight of the panel's Republicans joined Democrats in supporting the bill, Committee Chairman Barney Frank hailed its passage, saying he had higher hopes for the bill's enactment than he did when the House passed similar reform in 2007.
"You got a large Republican vote for it — larger than I expected," the Massachusetts Democrat told reporters after the vote. "Nearly a third of them voted for a tougher bill than we had last time.
The bill would require federal regulators to issue regulations that ensure borrowers have the ability to repay their mortgage and, when refinancing, that the loan provides a net tangible benefit.
During debate, the bill was amended to broaden the scope of mortgages that would fall into a qualified safe harbor that protects them from legal liability.
As modified by an amendment from Reps. Melissa Bean and Mike Castle, the bill's safe harbor would include certain fixed-rate and adjustable-rate mortgages with limited fees and rates that fall within average prime rates. The original bill only protected 30-year fixed-rate loans.
The bill would also ban incentive compensation that steers borrowers into costlier loans.
The panel adopted amendments from Frank that would give regulators more flexibility to require lenders to retain some risk. The provision originally would have required lenders to keep at least 5% of a loan's risk when selling it into the secondary market.
During debate, however, Frank amended the provision to let regulators determine how to require lenders to retain some risk and for how long. The Frank amendment also would allow regulators discretion to incorporate securitizers in risk-retention requirements.
Loans that fall within the safe harbor would be exempt from risk-retention requirements.
Other Frank amendments that were adopted clarified that yield-spread premiums would be allowed if they did not correlate compensation to higher-cost terms. Another Frank amendment adopted would increase liability for securitizers that fail to cure loans that did not meet the bill's underwriting standards.
The provision also clarified that federal securitizer liability standards would preempt state laws.
On Tuesday the committee approved an amendment from Rep. Paul Hodes that would let state attorneys general enforce the bill's federal standards.