WASHINGTON -- A prominent legislator has stepped up pressure to close a "huge regulatory gap" and bring mortgage banks under Community Reinvestment Act standards, like those that banks and thrifts now face.
"The mortgage marketplace has changed dramatically over the last two decades. But the laws governing that marketplace have not," said Rep. Joseph P. Kennedy 2d, D-Mass. at a hearing of the subcommittee on consumer credit and insurance of the House Banking Committee on Wednesday.
"As a result, we have witnessed the growth of a huge regulatory gap that has benefited mortgage banks and credit unions -- to the detriment of banks, thrifts, and working families," said Rep. Kennedy, who is chairman of the subcommittee.
When the Community Reinvestment Act was passed in 1977, banks and thrifts made 82% of home loans, Rep. Kennedy noted.
Today, mortgage banks and credit unions make more than half of all home loans, but focus on the "'high-dollar, high-volume, 'plain vanilla' suburban market," he said.
Rep. Maxine Waters, D-Calif. who has sponsored a bill to extend CRA to mortgage bankers, testified before the committee on her bill, and said she hopes for action "as early as next year."
"Momentum is on our side," she said, and added that top banking regulators and a key official at the Department of Treasury support that position.
It is unclear, however, if the next Congress, which is expected to be more strongly Republican, would take on such legislation.
Rep. Michael Castle, R-Del., suggested that the recent agreement between the Mortgage Bankers Association and the Department of Housing and Urban Development be given a chance to work before another law is passed. But the MBA, which had clearly hoped that the accord would give it cover at these hearings, found its strategy backfiring badly with Democrats. Rep. Kennedy and several other commitme members reserved their most scathing comments for the deal. They said the agreement, though laudable, was a case of too little, too late.
Under the deal, the trade group will provide its members training and other services to boost their lending to low-income and moderate-income borrowers, as well as minorities. It will also encourage members to sign their own agreements with HUD to meet voluntary lending targets to these groups.
Stephen Ashley, president of the MBA, said in response to a question that HUD was targeting 75 out of 3,000 mortgage bankers for the agreement.
Rep. Waters asked Mr. Ashley what "bad" consequences he foresaw, if a CRA law were applied to mortgage bankers.
Mr. Ashley said he thought mortgage banks could go out of business, if their loans in targeted areas did not meet the underwriting criteria of Fannie Mae and Freddie Mac.