WASHINGTON – The White House threatened to veto two bills on Tuesday – one that would mandate new cost-benefit requirements on the Federal Reserve and the other to allow loans held in portfolio to qualify as a "qualified mortgage."
The Fed bill, called the Fed Oversight Reform and Modernization Act, would require the central bank to use a mathematical formula for determining interest rates and give Congress and the Government Accountability Office oversight of that process, in line with the "audit the Fed" movement popular with some conservatives.
"The only aspect of the Federal Reserve's operations not subject to audit is its monetary policy decision-making, and for good reason," the White House said in a Statement of Administration Policy, adding that the legislation would "impose numerous, burdensome requirements for the Federal Reserve Board rule making authorities."
Fed Chair Janet Yellen also sent a letter to Congress opposing the bill, arguing it would hamper the central bank's ability to craft monetary policy. Yellen argued that no single formula could be applied to dictate monetary policy.
"Conducting monetary policy by strictly adhering to prescriptions of a simple rule would lead to poor economic outcomes," Yellen said. "There is no consensus among economists or policymakers about a simple policy rule that is best suited to cover a wide range of scenarios."
Yellen said the purpose of the Fed's statutory independence – independence that has been emulated by central banks around the world – is to take short-term political considerations out of the national monetary policy. The bill would effectively undermine that independence for political purposes.
"The FORM Act attempts to increase the transparency and accountability through misguided provisions that would expose the Federal Reserve to short-term political pressures," Yellen said. "For these reasons, I urge the House not to adopt the FORM Act."
Separately, the Obama administration also said it objected to a bill to allow loans held in portfolio to qualify for a legal safe harbor under the Consumer Financial Protection Bureau's "qualified mortgage" rule.
The proposal would "would undermine critical consumer protections by exempting all depository financial institutions, large and small, from QM standards—including very basic standards like verifying a consumer's income—as long as the mortgage loans in question are held in portfolio by the institution," the White House said, noting that the Congressional Budget Office has estimated the legislation would lead to more defaults than under current rules.
Sen. Elizabeth Warren, D-Mass., has strongly criticized the proposal, which is often advertised as community banking relief, arguing that it would actually help the country's biggest banks.