House votes to roll back mortgage rules

The House passed legislation Wednesday that critics argue rolls back regulations for mortgages that were created to prevent the bad lending practices responsible for the financial crisis of 2008.

The Portfolio Lending and Mortgage Access Act, which was introduced by Rep. Andy Barr (R-Ky.), passed by a 255-174 vote. The bill extends a federal exemption meant for small and rural banks to all banking institutions. 

The Consumer Financial Protection Bureau (CFPB) issued regulations last year that require lenders to ensure a borrower’s ability to repay a loan in order to obtain a qualified mortgage status, which provides lenders a “safe harbor” protection from federal penalties and lawsuits brought by borrowers who have defaulted on their loans. 

{mosads}But the bureau created an exemption to allow small and rural banks to achieve that qualified mortgage status without following the ability-to-repay rule, which requires a borrower’s debt-to-income ratio to be 43 percent or less. Banking organizations, which support extending the exemption, argued that the rule was too restrictive and caused mid-size community bankers to decrease or eliminate their mortgage businesses.

Though opponents of the bill say the legislation will open the door to the reckless lending practices of the past, supporters say there is a safety valve in place. Under the legislation, a lender would lose the “safe harbor” protection if the loan is securitized or sold into a secondary market.

“The aim of H.R. 1210 is simple: Banks and credit unions should be free to originate mortgages as long as they keep them on their books. As long as they keep the risk. This is responsible lending,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas).

But Rep. Maxine Waters (Calif.), the top Democrat on the House Financial Services Committee, warned it would undo a key part of new rules established by the CFPB in the wake of the 2008 financial crisis. 

“The bill undermines the anti-predatory lending provisions of the Dodd-Frank Act and virtually eliminates one of the most significant consumer protection rules implemented by the CFPB,” Waters said.

The Obama administration has issued a veto threat against the bill, warning it “would undermine the essential protections provided under the Qualified Mortgage rule.”