After months of congressional debate, by a vote of 237 to 192 the House on June 30 approved legislation that would provide the most sweeping overhaul of U.S. financial regulations since the Great Depression. The Senate is expected to take up the measure after Congress returns from its week-long July 4 recess.

Throughout the entire legislative process, NAHB has worked closely with congressional leaders to ensure that changes to financial regulations do not impede the flow of credit to the nation’s housing finance system.

Following is a summary of NAHB’s actions on several issues raised by H.R. 4173, the Wall Street Reform and Consumer Protection Act:

• Risk Retention. Working in conjunction with industry colleagues, NAHB warned lawmakers that without further modification, a provision requiring loan originators to keep 5% of the credit risk on each loan they securitize or sell could raise consumer borrowing costs and limit the availability of affordable mortgage options.

  NAHB worked to secure support and adoption in the Senate by unanimous consent of a provision that would create a special category for carefully defined, fully documented and properly underwritten residential mortgage loans, exempting them from the statutory risk retention requirements in the overall bill.

  The final legislative language would require federal banking agencies, the secretary of the Department of Housing and Urban Development and the director of the Federal Housing Finance Agency to jointly define a category of “qualified residential mortgages” that meet certain minimum standards, for which the 5% securitization risk retention requirement could be reduced in some cases to as little as 0%.

• Mortgage Lending. Throughout the debate on financial regulatory reform, NAHB provided strong warnings that some of the proposed mortgage lending reforms could raise mortgage costs and reduce mortgage innovation. Deliberations over mortgage lending started with the defeat of an Administration proposal to limit government financing to “plain vanilla” mortgage products.

  Congressional discussions on mortgage reforms came to a head when Sen. Bob Corker (R-Tenn.) offered an amendment mandating a 5% downpayment requirement for all mortgages, including those insured by the Federal Housing Administration (FHA). Running into strong opposition from NAHB, the Corker amendment failed by a vote of 57 to 42, with Democratic leaders supporting a new amendment effectively codifying a set of bank regulator mortgage guidance issued in 2006.

  After being reconciled with the tougher provisions on underwriting standards passed by the House late last year, the final legislative Senate language settled on a new set of mortgage reform and anti-predatory lending provisions focused on mortgage originator underwriting reforms and compensation issues.

• Federal Home Loan Bank Credit Exposure Concentration Limit. NAHB and a coalition of other organizations acted to address a provision in the Senate’s financial overhaul legislation that would have severely hampered the provision by the Federal Home Loan Banks (FHLBs) of much-needed liquidity to the financial system. The measure would have prohibited institutions important to the system from lending any unaffiliated company an amount exceeding 25% of the capital stock and surplus of the lending institution.

  NAHB advised key House and Senate leaders that this would force the FHLBs to reduce their advance positions to comply with the cap. As a result, in the final legislative package the FHLBs were excluded from the concentration limit requirement.

• Future Role of GSEs. After much partisan debate on the future of housing government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, the final legislation does not include substantive reform of the two housing financial institutions. In mid-May, a group of Republicans led by Sen. John McCain (R-Ariz.) introduced an amendment to end government control of Fannie Mae and Freddie Mac within two years and then force the two GSEs to reduce the size of their mortgage portfolios. Opposed strongly by NAHB, the amendment failed by a vote of 56 to 43.

  The final legislation requires the Treasury Department to study the feasibility and desirability of ending the conservatorship of Fannie Mae and Freddie Mac.

• Elimination of Thrift Charter and Office of Thrift Supervision. NAHB policy supports a specific charter for institutions specializing in housing finance (thrift charter) and a housing finance focus in any future bank regulatory structure. After reiterating this position to Congress, a proposal by the Administration to eliminate the thrift charter was removed in the final House-Senate conference report. Additionally, the conference report abolishes the Office of Thrift Supervision, transferring its authority mainly to the Office of the Comptroller of the Currency.
• Consumer Financial Protection Bureau. Throughout debate in the House and Senate, NAHB warned Congress that the creation of a new Consumer Financial Protection Bureau, or CFPB, could further destabilize an already fragile housing finance system. Arguing that consumer protection and safety and soundness should be regulated by the same entity in order to provide proper balance, NAHB and a large number of business and industry groups won some important distinctions in the final conference report establishing the new CFPB.

  The legislation calls for the CFPB to be an independent entity housed within the Federal Reserve. However, language was added to establish a bank regulator review system and authority for prudential regulators to conduct exams for banks under $10 billion.

• Bank Lending Limits. Along with its industry colleagues, NAHB expressed serious concern over a legislative provision that would have subjected state-chartered banks to national lending limits on loans to any one borrower as a percentage of their capital. This provision would have taken away from state regulators – who are better able to judge the unique circumstances of their state economies – the discretion they have exercised for decades on lending limits for state-chartered institutions. The final legislation that emerged from the House-Senate conference removed the language imposing national bank lending limits on state-chartered banks.

To view the legislation, click here and type H.R. 4173 in the box at the upper center of the page.

For more information, e-mail Scott Meyer at NAHB, or call him at 800-368-5242 x8144.