House Panel Clears Bill
On Mortgage Lending

WASHINGTON -- The House Financial Services Committee, working to address problems in the mortgage markets, passed a bill with broad support that would overhaul the way loans are offered, securitized and regulated.

"I think we have a national crisis to which we have to respond," said Rep. Barney Frank (D., Mass.), the committee's chairman. The panel voted 45-19, with nine Republicans voting for the measure. The bill is expected to go to the full House next week.

Under the measure, lenders would be required to consider a borrower's ability to repay an adjustable-rate mortgage after monthly payments reset higher than introductory rates, and also ensure that borrowers receive a "net tangible benefit" to refinanced mortgages. It also would require mortgage brokers be licensed, prohibit lenders from being compensated for steering borrowers toward certain high-cost products, and assign some limited liability to secondary market investors that finance certain subprime loans.

Opponents said the legislation would make it harder for borrowers to obtain a house and increase the cost of credit. But supporters said the problems in the mortgage-finance system allowed excesses and abuses to hurt homeowners. They said lenders were able to exploit a patchwork of state and federal laws to trap borrowers in unaffordable loans using questionable underwriting practices.

The banking industry lobbied unsuccessfully over the past two weeks to strip a provision of the bill that would allow states to pass stricter lending standards. Banks have argued that there should be one national standard, but supporters of the bill countered that states should have the discretion to pass more aggressive laws.

Senate Banking Committee Chairman Christopher Dodd (D., Conn.) has said he is working on a similar bill, but it is unclear when the legislation will be introduced.

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