May 13, 2010
United States Senate
Washington, DC 20510
Regulatory Reform Should Include Strong Tools to Deter Bad Mortgage Lending:
Defeat Corker Amendments 3955
We write on behalf of Americans for Financial Reform to urge you to oppose the Corker-Gregg-Isakson (#3955) amendment to S. 3217, the Restoring American Financial Stability Act of 2010. As you know, AFR is an unprecedented coalition of more than 250 national, state and local groups who have come together to reform the financial industry. Members of our coalition include consumer, civil rights, investor, retiree, community, labor, religious and business groups as well as Nobel Prize-winning economists.
Don’t promote irresponsible loan packaging – keep credit risk retention requirement in the bill
The Corker-Gregg-Isakson (#3955) amendment would eliminate the risk retention provisions of S. 3217, Title VII, Subtitle D, (b) Credit Risk Retention, and replace them with nothing but a study. This Amendment would leave in place the misaligned incentives and bad business practices that led us into the mortgage crisis. The mortgage meltdown and resulting financial crisis were caused by lenders making bad loans and then selling them to Wall Street, where securitizers sold them to our pension funds, mutual funds, and other investors and thereby widely poisoned the global economy. The lenders and packagers had no “skin in the game” and not enough incentive to care if the loans were bad loans.
The provision in the bill is nuanced and well-crafted. It already permits the regulators to reduce the risk retention requirement when the underlying loans meet a standard for reduced credit risk and to permit an exception “as may be appropriate in the public interest and for the protection of investors.” Reject this amendment and put an end to “keep the fee, pass the risk.”
Don’t unnecessarily cut off families from home mortgage credit, especially minority and lower-income communities.
The amendment would make it harder for families to purchase a home even when responsible underwriting determines that the family can make the monthly payments. By adding a 5 percent down payment requirement, this amendment would significantly harm efforts to extend homeownership to low and moderate income households, communities of color, and first-time homebuyers. Many of these households can afford monthly mortgage payments, particularly if they get a fixed rate mortgage with current low interest rates and current house prices that in many markets are below historical trends. But these families may be unable to acquire the wealth needed to meet the down payment requirement proposed in this amendment. The National Association of Realtors’ 2009 Profile of Home Buyers and Sellers showed that 11 percent of all home purchasers surveyed made down payments of 5 percent or less. When considering only first-time homebuyers, the percentage making a down payment below 5 percent increases to 18 percent. Improving underwriting to ensure that the consumer has the ability to repay their obligation is in the best interest of everyone, but randomly selecting just one mortgage term and creating an onerous statutory requirement related to that term will have significant detrimental ramifications for American families, the housing sector and those businesses that support it.
Don’t leave oversight of mortgage underwriting with the failed regulatory system
Finally, we oppose restrictions on the authority of the Consumer Financial Protection Bureau to address underwriting in home mortgages. Banking regulators were largely asleep at the switch – or in some cases, actively assisting wrongdoers – while the mortgage crisis unfolded, which is one of the core reasons that the CFPB is needed. Senator Corker’s amendment would unacceptably gut the ability of the CFPB to help consumers with what is typically the largest financial transaction in which they will ever participate.
We appreciate the opportunity to share our views with you on these amendments. We urge your opposition to Corker Amendments 3955. For more information, please contact Julia Gordon at the Center for Responsible Lending at 202-349-1878 (firstname.lastname@example.org), or Gail Hillebrand at Consumers Union at 415 431 6747 (email@example.com).
Americans for Financial Reform