[Congressional Record Volume 164, Number 39 (Tuesday, March 6, 2018)]
[House]
[Pages H1389-H1393]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
PORTFOLIO LENDING AND MORTGAGE ACCESS ACT
Mr. BARR. Madam Speaker, I move to suspend the rules and pass the
bill (H.R. 2226) to amend the Truth in Lending Act to provide a safe
harbor from certain requirements related to qualified mortgages for
residential mortgage loans held on an originating depository
institution's portfolio, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2226
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
[[Page H1390]]
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Portfolio Lending and
Mortgage Access Act''.
SEC. 2. MINIMUM STANDARDS FOR RESIDENTIAL MORTGAGE LOANS.
Section 129C(b) of the Truth in Lending Act (15 U.S.C.
1639c(b)) is amended by adding at the end the following:
``(4) Safe harbor.--
``(A) In general.--A residential mortgage loan shall be
deemed a qualified mortgage loan for purposes of this
subsection if the loan--
``(i) is originated by, and continuously retained in the
portfolio of, a covered institution;
``(ii) is in compliance with the limitations with respect
to prepayment penalties described in subsections (c)(1) and
(c)(3);
``(iii) is in compliance with the requirements related to
points and fees under paragraph (2)(A)(vii);
``(iv) does not have negative amortization terms or
interest-only terms; and
``(v) is a loan for which the covered institution
considers, documents, and verifies the debt, income, and
financial resources of the consumer in accordance with
subparagraph (C).
``(B) Exception for certain transfers.--Subparagraph (A)
shall not apply to a residential mortgage loan if the legal
title to such residential mortgage loan is sold, assigned, or
otherwise transferred to another person unless the legal
title to such residential mortgage loan is sold, assigned, or
otherwise transferred--
``(i) to another person by reason of the bankruptcy or
failure of the covered institution that originated such loan;
``(ii) to an insured depository institution or insured
credit union that has less than $10,000,000,000 in total
consolidated assets on the date of such sale, assignment, or
transfer, if the loan is retained in portfolio by such
insured depository institution or insured credit union;
``(iii) pursuant to a merger of the covered institution
that originated such loan with another person or the
acquisition of a the covered institution that originated such
loan by another person or of another person by a covered
institution, if the loan is retained in portfolio by the
person to whom the loan is sold, assigned, or otherwise
transferred; or
``(iv) to a wholly owned subsidiary of the covered
institution that originated such loan if the loan is
considered to be an asset of such covered institution for
regulatory accounting purposes.
``(C) Consideration and documentation requirements.--The
consideration and documentation requirements described in
subparagraph (A)(v) shall--
``(i) not be construed to require compliance with, or
documentation in accordance with, appendix Q to part 1026 of
title 12, Code of Federal Regulations, or any successor
regulation; and
``(ii) be construed to permit multiple methods of
documentation.
``(D) Definitions.--In this paragraph--
``(i) the term `covered institution' means an insured
depository institution or an insured credit union that,
together with its affiliates, has less than $10,000,000,000
in total consolidated assets on the date on the origination
of a residential mortgage loan;
``(ii) the term `insured credit union' has the meaning
given the term in section 101 of the Federal Credit Union Act
(12 U.S.C. 1752);
``(iii) the term `insured depository institution' has the
meaning given the term in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813);
``(iv) the term `interest-only term' means a term of a
residential mortgage loan that allows one or more of the
periodic payments made under the loan to be applied solely to
accrued interest and not to the principal of the loan; and
``(v) the term `negative amortization term' means a term of
a residential mortgage loan under which the payment of
periodic payments will result in an increase in the principal
of the loan.''
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Kentucky (Mr. Barr) and the gentleman from Michigan (Mr. Kildee) each
will control 20 minutes.
The Chair recognizes the gentleman from Kentucky.
General Leave
Mr. BARR. Madam Speaker, I ask unanimous consent that all Members may
have 5 legislative days in which to revise and extend their remarks and
include extraneous material on this bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Kentucky?
There was no objection.
Mr. BARR. Madam Speaker, I yield myself such time as I may consume.
Madam Speaker, H.R. 2226, the Portfolio Lending and Mortgage Access
Act, represents a very simple solution to a significant policy
challenge facing our economy: how to expand access to mortgage credit
without replicating the accumulation of excess risk in the mortgage-
backed securities market like we witnessed in the run-up to the 2008
financial crisis.
My legislation achieves both goals by extending the qualified
mortgage legal safe harbor to small creditors, banks, and credit unions
with total consolidated assets of $10 billion or less, that originate
and hold residential mortgage loans in portfolio, rather than selling
or securitizing them, allowing those lenders to satisfy Dodd-Frank's
ability-to-repay rule.
Such a policy would actually incentivize private sector risk
retention--a goal of the Dodd-Frank Act itself--and mark a return to
relationship lending in which a bank or credit union can tailor
products to a consumer's needs and credit risk, without running afoul
of one-size-fits-all government requirements. Under CFPB regulations,
only government-defined qualified mortgages enjoy a presumption that a
lender has satisfied the Dodd-Frank law's ability-to-repay
requirements.
Small banks and credit unions have been disproportionately impacted
by these rules, given their reliance upon residential mortgage lending
and greater involvement in small dollar or balloon loans that run afoul
of current QM regulations. It is no surprise that Harvard researchers
have found that, since Dodd-Frank's passage, community banks have lost
market share at a rate double that experienced between 2006 and 2010, a
period including the entirety of the financial crisis. It is also not a
surprise that many small community financial institutions have
testified in front of the House Financial Services Committee and to
many of my colleagues that they have simply left the mortgage business
altogether because of the difficulties associated with the QM rule as
currently constructed.
Indeed, a third of the National Association of Realtors survey
respondents reported being unable to close mortgages due to a
requirement of the qualified mortgage rule. Residential mortgages were
the product or service most often identified by surveyed banks as a
candidate for discontinuation as a result of Dodd-Frank. A recent study
by the John F. Kennedy School of Government at Harvard University
documents the falling share of bank participation in mortgage
originations.
Everyone agrees, especially after the 2008 financial crisis, that a
borrower should be required to show a demonstrable ability to repay.
The only question is: Who is in the best position to make that
determination--a community banker with a professional and, perhaps,
even a personal relationship with the borrower who has full view of
that borrower's character, creditworthiness, financial situation, and
who is willing to assume 100 percent of the downside risk of default;
or is it an unaccountable, unelected bureaucrat in Washington, D.C.,
who literally knows absolutely nothing about that borrower?
By bearing 100 percent of the risk, financial institutions have every
incentive to make sure that a borrower can afford to repay a loan.
Banks and credit unions would have more than just skin in the game.
Under this legislation, their interests would align perfectly with that
of a borrower.
As one witness in front of our committee testified: ``A financial
institution that retains a loan's credit and interest-rate risk has a
keen interest in engaging in thorough, sound underwriting to determine
the borrower's ability to repay. Allowing a financial institution to
make a customer-specific lending decision on a loan it intends to hold
in its portfolio can be a more effective way of protecting consumers
than regulatory attempts to micromanage mortgage terms with inflexible
standards.''
No less than Barney Frank, former chairman of the committee, endorsed
this concept in a hearing before this committee, saying he ``would like
the main safeguard against bad loans to be risk retention, because that
leaves the decision in the hands of whoever is making the loan,'' the
CFPB also, itself, acknowledged this key point in its own rulemaking,
where it recognized that portfolio lenders ``have strong incentives to
carefully consider whether a consumer will be able to repay a portfolio
loan at least in part because the small creditor retains the risk of
default.''
This legislation also presents a viable alternative to the
``originate to distribute'' mortgage lending model that contributed to
the subprime mortgage meltdown and bubble in residential real estate
and taxpayer bailouts. The
[[Page H1391]]
result is expanded access to mortgage credit without additional risk to
the financial system or to the taxpayer.
In fact, this is particularly important for young families and first-
time home buyers, who tend to have difficulty meeting the ability-to-
repay requirements due to circumstances, such as significant student
loan debt, but who are otherwise creditworthy.
I have been working on this legislation for 5 years now, and I am
happy to announce that, this year, we had a bipartisan breakthrough.
That is because, at the committee markup, I offered an amendment that
limited the scope of this bill to financial institutions with less than
$10 billion in assets. And my distinguished colleague, Representative
Capuano, offered a technical amendment that enhanced the legislation by
clarifying a few key provisions. I am pleased to report that,
because of those two amendments, the Portfolio Lending and Mortgage
Access Act passed with unanimous support in the committee and is now on
the floor today for consideration.
I want to thank Chairman Hensarling, Ranking Member Waters,
Representative Capuano, the Kentucky Bankers Association, the Kentucky
Credit Union League, the American Bankers Association, the Independent
Community Bankers of America, the Credit Union National Association,
the National Association of Federal Credit Unions, the National
Association of Home Builders, and the United States Chamber of Commerce
for their hard work on this important legislation.
If passed by the House, it is my hope that the Portfolio Lending and
Mortgage Access Act moves quickly through the Senate. Eleven of our
Democratic colleagues in the upper Chamber support this exact language,
which is in Chairman Crapo's community financial institution relief
bill. Together, Republicans and Democrats can deliver on the regulatory
relief that many of us in this body have promised to our constituents
that will enable more of them to buy the home of their dreams.
Madam Speaker, I invite all of my colleagues to vote for this
important pro-homeownership legislation that perfectly aligns lender
and borrower interests to the benefit of America.
Madam Speaker, I reserve the balance of my time.
Mr. KILDEE. Madam Speaker, I yield myself such time as I may consume.
Madam Speaker, I thank my colleague for his persistence in offering
this legislation. As he said, in committee, we had a successful markup
where we were able to unanimously support this legislation. It is
important legislation.
We don't agree on everything. One doesn't have to go very far. Back
in committee, right now, where we have a rather contentious markup on a
budget using estimates, as I said in that meeting: When we do agree, we
should come together. Representative Barr and I have talked about this
issue for quite some time, and I am really pleased to see it move
forward.
Madam Speaker, I urge my colleagues to support H.R. 2226, the
Portfolio Lending and Mortgage Access Act, which would allow certain
mortgages that are originated and retained in portfolio by a bank with
less than $10 billion in total assets to be considered as qualified
mortgages.
In the lead-up to the financial crisis, there were a number of
mortgage lenders that did not do their due diligence in underwriting
mortgages. We saw a number of exotic products being offered to
individuals and families premised on a continually rising housing
market.
These included ``no doc'' loans where the lender did not document or
verify a borrower's income. There were real consequences for those
sorts of loans. Many of these borrowers never really had any hope of
paying back those loans. As those mortgages went into default, the
foreclosures helped lead to a financial crisis that devastated the U.S.
economy, and millions of families were stripped from their single
source of wealth: the equity in their home.
In the wake of that crisis, Congress passed the Dodd-Frank Act and
required lenders to assess a consumer's ability to repay their mortgage
loans.
We also provided statutory penalties for mortgage lenders that did
not follow these new underwriting standards.
Congress also directed the Consumer Financial Protection Bureau to
enact regulations to create a safe harbor for creditors, where it would
be presumed that the creditor evaluated the borrower's ability to
repay.
In 2013, under the direction of former Director Cordray, the Consumer
Financial Protection Bureau released its ability-to-repay and qualified
mortgage rule. This rule defined how lenders could take advantage of
that safe harbor.
Qualified mortgages, commonly referred to as QM loans, are a special
category of loans that have strong underwriting standards and certain
nonpredatory loan features that help make them more likely that
borrowers will be able to afford their mortgages.
So if a lender originates a QM loan, it means that the lender met
certain requirements, and it is assumed that the lender followed the
ability-to-repay rule as drafted by the Consumer Financial Protection
Bureau. This also allows the lender to be shielded from certain types
of liability associated with originating bad loans.
I and my colleagues were pleased that the Consumer Financial
Protection Bureau tailored the rule to ensure that lenders who serve
rural and underserved communities have flexibility in serving their
customers.
While that was a very good first step, Congress has pushed to expand
this tailoring to include even more community banks and credit unions,
consistent with safe and sound operations. H.R. 2226, as amended in the
committee, provides this targeted and, I think, reasonable relief.
As Representative Barr and I have indicated, there are additional
refinements to the bill that I would have still liked to have seen
adopted, such as additional guardrails on the types of products
offered. I am glad, however, and as Mr. Barr indicated, the leadership
of the committee, the majority, agreed to crucial language offered by
Mr. Capuano to improve the bill.
As amended, lenders are required to continually hold these loans in
portfolio, and not only consider and document, but verify a borrower's
income information.
Congress should not be in the business of allowing lenders to
underwrite and offer mortgage loans that borrowers have no ability to
repay.
I am supportive of this bill for that reason, but also because I
believe it will help in areas of the country that have weaker housing
markets. This has really been the reason that I have been interested in
the issue of portfolio lending.
As many know, I represent Flint, Michigan, which not unlike a number
of communities across the country have very weak and very low cost
markets. You can purchase a single family home in Flint for $25,000--
not $250,000--$25,000.
Under the QM rules, financial institutions sometimes, justifiably,
struggle to make these small mortgages, resulting in even more stagnant
markets--it is a vicious cycle--and weakening these markets
permanently. If we can't get people financed into mortgages, these
communities and the market will never recover.
{time} 1345
This bill will encourage community banks and credit unions to make
those smaller mortgages, to help weaker markets.
It is for that reason and many others, but particularly for that
reason, that I encourage my colleagues to support this legislation. It
is a big step in the right direction for weak markets. I hope my
colleagues will join me in supporting it.
Madam Speaker, I reserve the balance of my time.
Mr. BARR. Madam Speaker, I yield myself as much time as I may
consume.
Madam Speaker, I want to thank my friend, the gentleman from Michigan
(Mr. Kildee), for his constructive comments, his support. And the
gentleman is absolutely correct. He engaged with me and my colleagues
who were cosponsoring this legislation in a very constructive manner.
He made valuable contributions, along with Mr. Capuano and the ranking
member. Several other members on the other side of the aisle, Mr.
Perlmutter, for example, offered his thoughtful comments as well. I
appreciate the support, the bipartisan support, working through a
compromise to get this legislation to where
[[Page H1392]]
it is today, so I thank the gentleman for that.
Madam Speaker, I yield 2 minutes to the gentleman from Minnesota (Mr.
Emmer), who is also a sponsor of this legislation and a distinguished
member of the Committee on Financial Services.
Mr. EMMER. Madam Speaker, when the House passed the Financial CHOICE
Act to repeal Dodd-Frank last year, we did so because we believe in
Main Street, we believe in the consumer, the American consumer.
Dodd-Frank promised to protect consumers from the big banks on Wall
Street. In reality, Dodd-Frank has punished small banks and credit
unions and, ultimately, the American consumer.
The loss of community financial institutions tells the story. In my
State of Minnesota, we had 513 community banks in 2000. Today, we have
about 309, and continue to experience a drought in de novo charters.
Credit unions have, unfortunately, faced similar challenges. This
means there are fewer places for Americans to turn when they are
seeking a loan for their first home or perhaps to get a small business
off the ground.
One specific provision in Dodd-Frank requires lenders to deny loans
to individuals who do not meet government-prescribed standards. This,
according to Washington, makes loans safer, since, of course,
government knows best. But in reality, these mortgages have not been
made safer. They have been made unavailable. As a result, the
likelihood of getting approved for a loan and becoming a homeowner has
plummeted.
Representative Barr's legislation, the Portfolio Lending and Mortgage
Access Act, takes steps to empower lenders in Minnesota and across the
country and to better serve the needs of their customers by extending
important protections to institutions and ensuring access to credit for
American borrowers.
At the end of the day, the most effective way to ensure an individual
has the ability to repay does not always need to be government-
prescribed.
I appreciate my colleague from Kentucky's hard work to protect and
reinvigorate our community financial institutions, and I urge my
colleagues to support H.R. 2226, the Portfolio Lending and Mortgage
Access Act, as it comes before the House for a vote.
Mr. KILDEE. Madam Speaker, I reserve the balance of my time.
Mr. BARR. Madam Speaker, I yield 3 minutes to the gentleman from
Illinois (Mr. Hultgren), who is also, I believe, a sponsor of the
legislation.
Mr. HULTGREN. Madam Speaker, I thank Chairman Barr for yielding.
Madam Speaker, I rise today to speak in support of H.R. 2226, the
Portfolio Lending and Mortgage Access Act, and I am proud to be an
original cosponsor of this legislation.
This is something that Chairman Barr has worked on for at least two
Congresses now, and I feel that we are finally in a place where we can
get some commonsense changes to the CFPB's qualified mortgage rules
that provide relief to community banks and credit unions.
I was very pleased to see this legislation get a unanimous vote in
the Committee on Financial Services earlier this year. I am also very
happy to see that the Senate Committee on Banking, Housing, and Urban
Affairs is taking note of this issue and has advanced similar
legislation.
The Dodd-Frank Act required the Consumer Financial Protection Bureau
to come up with a series of new rules regarding mortgage lending. One
of these rules was the so-called qualified mortgage rule, which
provides a safe harbor to loans if they meet certain criteria
prescribed by the Bureau. This effectively means that the market treats
any loans that are not qualified mortgages as being much riskier.
The Bureau's rule is especially challenging for community banks and
credit unions. These lenders do not tend to be as automated as larger
financial institutions. They also tend to put more time into
underwriting mortgages to reflect the unique circumstances of the
customers in their communities.
However, the CFPB's qualified mortgage rule took away much of this
flexibility from these lenders by doing things like instituting a 43
percent debt-to-income ratio. This might be a good indicator of
repayment risk for a lot of mortgages, but a one-size-fits-all is
almost never a good approach.
The CFPB's rule also did not acknowledge the fact that small lenders
do not tend to sell these loans into the secondary market. They keep
100 percent of the risk on their portfolio. This means these lenders
have a very strong incentive to issue loans that they believe will be
repaid.
If loans held on portfolio can be treated as qualified mortgages,
then these banks and credit unions will have a stronger incentive to
manage any risk associated with these mortgages.
The Portfolio Lending and Mortgage Access Act would treat loans held
on portfolio by community banks and credit unions as qualified
mortgages if they meet some other criteria, such as not having a
negative amortization or interest-only features.
This change to the CFPB's qualified mortgage rule will go a long way
towards simplifying how our community financial institutions can help
families achieve the dream of home ownership.
I have been hearing about this legislation from community banks and
credit unions in Illinois, and I am confident it will help my
constituents.
Madam Speaker, I want to encourage all of my colleagues to support
this important legislation.
Mr. KILDEE. Madam Speaker, I yield myself the balance of my time to
close.
Madam Speaker, just to reiterate, we don't agree on everything. Even
some of the debate in this conversation, I think we could find areas of
disagreement. But when it comes to the specifics of this legislation, I
think it strikes a good balance. The balance, for me, being the notion
that we can deem these mortgages held by smaller institutions, as long
as they are held in portfolio, as meeting the QM requirements.
In exchange for that, what we get is, in weak markets, we get a
chance for folks who essentially have been locked out of home ownership
to be able to get a small mortgage literally on a $25,000, $30,000, or
$40,000 home and begin to build equity that will return value to that
family and to that community for a long, long time.
For that reason, I support this legislation and I urge my colleagues
to join me in voting ``yes'' on it.
Madam Speaker, I yield back the balance of my time.
Mr. BARR. Madam Speaker, I yield myself the balance of my time.
In closing, let me just reiterate that this legislation solves two
problems. It solves the problem of responsible expansion of access to
mortgage credit, access to that American Dream of home ownership; and,
at the same time, preventing the mistakes that led to the 2008
financial crisis, the originate to distribute model where originators
of mortgages had no skin in the game and they allowed those mortgages
to be poorly underwritten or not underwritten at all, with no
documentation, and then securitized and sold into the secondary market,
really without any eye towards the consumer and the borrower's ability
to repay.
Everybody in this institution, as evidenced by the bipartisan work
here, we all recognize that a borrower should demonstrate an ability to
repay that loan, but the crux of this legislation, at the core of this
legislation is a recognition that a local community banker, a local
credit union, a lender with a personal relationship with a borrower is
in the best position to determine whether or not that borrower, that
prospective homeowner, can repay that loan.
When there is risk retention, when that lender is charged with the
responsibility of maintaining that loan in portfolio, the lender is
much more incentivized to properly underwrite that loan and make sure
that that customer, that borrower, that future homeowner, has a
demonstrable ability to repay. I think it is a much better substitute
to a one-size-fits-all credit box from, frankly, bureaucrats in
Washington, D.C., who have no eye towards the creditworthiness of that
particular borrower.
We have worked with our friends on the other side of the aisle to
make this a bipartisan piece of legislation limiting the size of the
institutions that can access this regulatory relief. But, clearly, when
community financial institutions, bankers from around the country,
every part of the country, are saying that they see the QM rule as not
``qualified mortgages,'' but as ``quitting mortgages;'' and when we see
an
[[Page H1393]]
unnecessary constraint of mortgage credit; and when the National
Association of Realtors are reporting that they are unable to close
mortgages due to this onerous qualified mortgage rule, clearly the
pendulum has swung too far.
So, yes, we needed some reforms in the aftermath of the financial
crisis. This QM rule went too far. This is a recalibration of that. And
this is important regulatory relief for our community financial
institutions that will inure to the benefit of the American home-buying
public, and it will do so in a responsible way, providing a viable
alternative to the originate to distribute practices that really led to
the financial crisis.
Madam Speaker, let me just make one final observation, and that is to
give credit to the administration. The Department of the Treasury, in
their findings and recommendations in their report on banks and credit
unions, they recognized that this was a problem in the mortgage lending
space and they made a recommendation also to increase the portfolio
lending safe harbor to institutions with $10 billion in assets or
lower; and that, as they argued, will accommodate loans made and
retained by small depository institutions, provide that needed
regulatory relief to our community financial institutions, and also
expand access to mortgage credit in a responsible way.
Madam Speaker, I thank my colleagues for their support. At this time
I have no further requests for time, and I yield back the balance of my
time.
The SPEAKER pro tempore. The question is on the motion offered by the
gentleman from Kentucky (Mr. Barr) that the House suspend the rules and
pass the bill, H.R. 2226, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________