AFR Statement: Two Bad Bills Win House Approval

The House of Representatives passed two ill-advised financial deregulation bills on November 18th. Both are giveaways to some of the country’s biggest banks. Both, if they ever became law, would mark a dangerous retreat from the financial reforms put in place after the financial crisis. The good news is that neither bill attracted a significant number of Democratic votes, making their enactment unlikely.

HR 1210, the “Portfolio Lending and Mortgage Access Act,” would create a large exemption from new mortgage lending rules which require verification of a borrower’s ability to repay before a loan can be issued. This measure also protects mortgages with risky features, such as negative amortization, reminiscent of the abusive loans that helped fuel the financial crisis. Because of a tailored portfolio-lending exemption already granted to community banks by the Consumer Financial Protection Bureau, it is big banks, including the Wall Street megabanks with assets of a trillion dollars or more, that would be the major beneficiaries.

In addition, H.R. 1210 partially repeals a ban on loan steering. Steering is the practice of directing borrowers to lenders or loan products more expensive than the best they qualify for. This was common behavior among mortgage broker and other loan originators in the runup to the crisis, and African-Americans and other borrowers of color were especially likely to be steered. Because steering can lead to unaffordable loans and higher rates of default, it damages not only the people directly involved, but other homeowners as well.

HR 3189, “The Federal Reserve Reform Act of 2015,” is a sweeping bill that would significantly modify Federal Reserve powers and policies in a range of areas, from monetary policy to financial regulation. AFR supports a number of reforms, including some provisions of HR 3189, to make the Federal Reserve more transparent and accountable. But this legislation, among other damaging elements, calls for modifications of the Fed’s powers that would dramatically reduce the ability of regulators to effectively oversee giant Wall Street banks and financial institutions. By requiring the Fed to give regulated institutions detailed advance information on the methods used for “stress testing” their risk profiles, HR 3189 would also make it possible for banks to rig the results of their tests. In addition, it would require the Fed to go through dozens of complex and largely redundant economic-analysis procedures before any rulemaking – procedures that would lengthen a rulemaking process that is already slow, while at the same time giving regulated institutions fresh opportunities to challenge Fed actions in court. Still other changes in the bill would make it far more difficult for the Fed to cooperate with international regulators.

It is significant that both bills passed essentially along party lines. Only eight House Democrats voted for HR 1210; only two for HR 3189. That result will frustrate the ability of the big banks and their congressional allies to make a credible claim of bipartisan support, and make it harder for these troubling proposals to advance further, either as stand-alone measures or as parts of broader bills.

See AFR letters on HR 1210 and HR 3189.