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American Banker  |  Tuesday, March 31, 2009

WASHINGTON — House Financial Services Committee Chairman Barney Frank's bill to curb risky mortgage lending is sparking concerns that it could push some major players from the market and leave borrowers with little choice but 30-year fixed loans.The bill, introduced late last week as a centerpiece of Frank's agenda, is significantly tougher than a similar measure the House passed two years ago. Among other changes, it would require loan originators to retain at least 5% of the credit risk of a mortgage, and it would give liability protection only to loans with a 30-year fixed rate.     "This would return mortgage lending back to the 1950s and has a limiting effect on mortgage products," said Scott Talbott, a senior vice president for the Financial Services Roundtable.     
The overall impact of the 151-page bill was unclear Monday, with industry lobbyists still combing through it. But many said that if it passed in its current form, it would fundamentally alter the mortgage market.    
 "Everything in here is going to have a profound change on the way in which the mortgage lending business is carried out," said Steve Zeisel, a vice president and senior counsel at the Consumer Bankers Association. "There is nothing small about this."
     The bill remains based on the Frank legislation that was passed in 2007 but not picked up by the Senate. The crux of the measure would establish basic underwriting standards to ensure borrowers qualify only for loans they can repay and would increase liability throughout the mortgage chain to ensure accountability.     It would provide banking regulators with discretion to write rules to help determine whether a loan is affordable or — in the case of refinancings — provides a net tangible benefit to the borrower.     The bill also includes penalty provisions that would let borrowers sue and even rescind a loan that fails to comply with the bill's standards, but it would offer a safe harbor to loans that fall within certain guidelines.

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