Stop Mortgage Fraud Act

Mr. Chairman, I yield myself such time as I may consume.

We are dealing with legislation today that seeks to prevent a repetition of events that caused one of the most serious financial crises in recent times.

We understand today that we are in a worldwide problem economically, with a terrible shortage of credit, with some institutions threatened. There is no debate about what is the largest single cause of that.

Innovations in the mortgage industry, in themselves good and useful, but conducted in such a completely unregulated manner as to have led to this crisis, I know people have said, well, we may be exaggerating it. Here's what we recently heard from the head of the Blackstone operation:

``The mortgage black hole is, I think, worse than anyone saw. Deeper, darker, scarier. The banks are now looking at new reserves and my sense . . . is they don't have a clear picture of how this will play out.'' That's from one of the leading private sector entities.

What we have today is a bill that cannot undo what happened but makes it much less likely that it will happen in the future.

The fundamental principle of the bill, and many people have lost sight of this, is not to put remedies into place to deal with these problems when they recur, but to stop them from occurring in the first place.

We have had two groups of mortgage originators recently. We have had banks subject to the regulation of the bank regulators, and they've made mortgage loans. And then we have had mortgage loans made by brokers who were subject to no regulation, who had access to pools of money that were not regulated and could sell it to an unregulated secondary market. It is not the case that the brokers are morally inferior to the bankers. In both cases we are talking about people overwhelmingly who are decent and well-intentioned. The difference is the absence of regulation so that pressures to do things that were irresponsible were checked by regulation in the banking area and were left unchecked elsewhere.

Essentially what this bill does in its most important form is to try to conceptualize the rules that bank regulators used to prevent loans from being made that should not have been made and apply them to all loan originators. Again, the goal is not to give more remedies when people face foreclosure when there have been abuses, but to prevent the abuses in the first place.

One question has been raised from some in the Attorney General field and elsewhere who say, what about our current efforts to deal with the people who were abused? Thanks to a very explicit amendment by the gentleman from North Carolina (Mr. Watt) who, along with the gentleman from North Carolina (Mr. Miller), is one of the main authors of this bill, this bill will be entirely prospective in its effect, and people should understand no cause of action, no legal complaint, no remedy sought against anybody who up until now and until this bill is signed many months in the future, none of those causes of action will be abrogated. Every remedy being pursued against past abuses and even abuses that may yet to have occurred, although we hope they won't, until this bill becomes law will not be stopped.

There is some controversy about preemption. The bill takes a balanced position which has made a lot of people on all sides a little bit unhappy. We do not preempt the right of States to decide how to deal with mortgage originators, with lenders, with any of those. We do say that with regard to the secondary market, we are going to put some liability on those who are the active packagers, and that's in some ways controversial; but we believe the unregulated secondary market was a large part of this problem.

We do believe that you need to have some uniform rules if you are going to have a functioning secondary market. And we believe the secondary market has been on the whole useful but, having been unregulated, has caused some problems. So there is a limited preemption to that extent.

We are continuing to talk with people about ways to, frankly, improve this bill. There will be some amendments adopted today that will do this. It is a subject of great complexity with a lot of interlocking parts and some legitimate competing interests. We have arrived today, we think, at a reasonable balance. We do not believe that this is the way the bill absolutely will look in the end, but it is clear progress. And I want to stress the key point here is not in remedying past abuses. This bill allows all existing remedies for past abuses to stay in effect. This bill tries hard to prevent this pattern of loans being made that should not have been made for a variety of reasons from recurring and causing that great damage.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I am very pleased to be able to yield to a member of the committee, who is not only one of the authors of this amendment, but has been a real source of strength to us in dealing with these issues throughout.

I yield the gentleman from North Carolina (Mr. Watt) 4\1/2\ minutes.

I yield 3 minutes to another Member who had a great input into this, the Chair of the Housing Subcommittee of our committee, the gentlewoman from California (Ms. Waters).

Mr. Chairman, I yield 2 minutes to another member of the committee, the gentleman from Georgia (Mr. Scott).

Mr. Chairman, I yield 2 minutes to another member of the committee who has been very active in this issue, the gentleman from Minnesota (Mr. Ellison).

Mr. Chairman, I yield 2 minutes to the gentlewoman from New York (Mrs. Maloney), chairman of the Subcommittee on Financial Institutions of the Committee on Financial Services.

(Mrs. MALONEY of New York asked and was given permission to revise and extend her remarks.)

Mr. Chairman, I yield 2 minutes to the gentlewoman from Illinois (Ms. Bean), another hardworking member of the committee.

Mr. Chairman, will the gentleman yield?

I thank the gentleman for yielding.

The gentleman from California and the gentleman from North Carolina, who is a prime sponsor of this, have been in conversations.

And I believe it is possible to achieve both objectives, that is, flexibility as to mode but the full substantive protection. And so going forward, as this bill moves on and ultimately we get to conference, I do think we can provide flexibility as to method while preserving the full substantive protections. And there will be conversations between the Miller brothers on that subject.

I now yield to another member of the subcommittee who has been very much involved, particularly in the area of manufactured housing, as well as others, the gentleman from Indiana (Mr. Donnelly).

Mr. Chairman, I now yield to another member of the committee who has been active on this issue, the gentleman from Connecticut (Mr. Murphy), for 2 minutes.

The gentleman has been very tough on this issue, appropriately, and he is right.

Some people can read ambiguity into 2 plus 2, and we will deal with that. We are lawyers. We are into redundancy. So in the colloquy I will be having with the gentleman from North Carolina (Mr. Miller) we will reaffirm the point that the gentleman from Connecticut is making. I guarantee that by the time this bill comes out of conference, no one will be able to raise any doubt about the prohibition on anybody being compensated for costing the consumer more.

Mr. Chairman, I now yield to a man who is going to have a lot of free time after today because much of his life in the last year has been helping put this bill together in a very masterful way, the gentleman from North Carolina (Mr. Miller), for 4 minutes.

How much time do I have remaining, Mr. Chairman?

I yield myself my remaining time to enter into a colloquy with my colleague from Alabama.

Mr. Chairman, the gentleman from Alabama, this has been a collaborative effort in many ways. We have had some disagreements, but there has been a lot of agreement. And the gentleman from Alabama in particular took the lead in the language that went into the bill in committee and is being refined here dealing with nationwide registration requirements, a prerequisite for any kind of enforcement. Now, I appreciated the work he did and the committee benefited from it.

Community banks are obviously very important in this. And, indeed, if only community banks had made loans for mortgages, we wouldn't have a crisis. But we don't want to interfere with their ability to help going forward.

I would just yield to the gentleman in a minute to have him give his interpretation. My view is, and I defer to him as the spokesperson for the committee on this, because we are here talking about language which he developed and which we incorporated. We do have some regulatory requirements here that would affect not just the brokers but community banks. And I assume my colleague from Alabama, in drafting this, certainly intended and we meant to do this in the language, that the regulatory agencies would be able to show some flexibility in terms of the impact of these requirements on our community banks.

I would yield to my friend from Alabama on that point.

I thank the gentleman. In my closing seconds, let me just reiterate an important point.

Attorneys General have been concerned about their ability to prosecute and defend against certain abuses. Thanks to the gentleman from North Carolina (Mr. Watt), the effective date of this bill and all of its provisions will be the date of enactment. What that means is that any transaction that occurred before the bill becomes law, any loan that was made, will not be subject to the preemption. So we do want to reassure any law enforcement official out there that their rights to go against people who have been abusive will in no way, up until new loans are made, be in any way diminished.

Mr. Chairman, I offer an amendment.

Mr. Chairman, first, this bill makes some substantive changes, including one of the things we came across was the problem of people who were renting who lost their right to live there when there was a foreclosure.

We have compromised in this. I have had some conversations; I will have some further ones with the gentleman from Colorado. But we do try to preserve some protection for the renters in the bill. As passed by committee, we had 12 months. This reduces it some to 6 months as the maximum. We will talk more about it.

Beyond that, there are two things that the manager's amendment clarifies, and I have found from some on the consumer side two objections in this bill, and we deal with these in the manager's amendment and we will deal with them further. One is the issue of preemption.

I think a certain amount of preemption is essential if we are going to have a secondary market, but it is possible to read the language previously as preempting more than we meant to. What this amendment does is to make very clear that, no matter what the issue is, if the problem was based on fraud or misrepresentation, deception, or false advertising, there is no preemption. The ability of people to go after anything that was based on misrepresentation or fraud is fully preserved, whether or not it affected their ability to pay.

Secondly, we have--and I am pleased to note that La Raza and the NAACP support this bill--we included at the insistence of the gentleman from North Carolina and the gentleman from California specific language about civil rights violations. No civil rights violation that a State may have would be preempted.

So we have narrowed the preemption. We have made it clear it does not preempt anything growing out of fraud.

The second issue that has led to some concern, and I am about to yield to my friend from North Carolina (Mr. Miller) has to do with compensation. It was our intention to say that no one who was originating a loan should be given an incentive to put the consumer in a loan that would charge that consumer more than he or she could otherwise get, and we dealt with that.

The question then came about the way in which brokers are compensated, and we tried to provide two things: One, an absolute prohibition on any incentive to charge people more, but, two, not an interference with the way in which people chose to make those payments.

We thought we had the language clear. Some people think it isn't clear enough. One of the things we will do is to make that clearer.

And I would yield on this point to the gentleman from North Carolina.

Yes. That is absolutely what I believe the language says, and it is certainly our intent.

Yes. I would say, and let me just read the language at the bottom of page 4 of the manager's amendment. Those payments ``do not vary based on the terms of the loan or the consumer's decision about whether to finance.''

So we have tried to make it very explicit: Flexibility in method does not in any way reduce the prohibitions that have been stated against an incentive to charge more. And if it is necessary for us to say that again more clearly, as some people may think it is, we will find new ways to say it.

Will the gentleman yield me 15 seconds out of his time?

Yes. And also, the total cost of the loan has to be the same.

Yes, yes, yes. I feel like I am in Ulysses here.

Mr. Chairman, I move that the Committee do now rise.

Thank you, Mr. Chairman. I would like to thank you and Mel Watt, Mr. Bachus and Mr. Miller and others who have worked so hard on this bill. It is a very complicated issue. You have done a spectacular job.

I rise in support of the Mortgage Reform and Anti-Predatory Act of 2007. Each month brings figures, new figures, that reinforce the importance of putting in place a Federal legislative and regulatory framework that prevents us from reliving this crisis in the mortgage markets. I have a keen interest in this legislation because of the disproportionate impact of the foreclosure wave on my home State. California's third quarter foreclosure rate of one foreclosure filing for every 88 households ranked second highest in all States and reflects a near quadrupling of the number reported for the same period last year. Five of the top 10 metropolitan areas in foreclosure filings are in California.

Clearly, we need to prevent the now widespread practice of getting people into loans they simply can't afford. H.R. 3915 takes critical steps in this respect, including, for the first time, imposing a Federal duty of care on all mortgage originators and setting minimum Federal standards on all mortgages. Anchoring the bill's approach are newly established minimum standards regarding the borrower's ability to repay and net tangible benefit to the consumer. This is a sound strategy given that federally regulated mortgage originators have long had to meet similar benchmarks, and not coincidentally, we have seen few problems in that sector of the market.

H.R. 3915 also seeks to reduce the incentives to market inappropriate credit products to borrowers. I am particularly pleased that H.R. 3915, again for the first time, removes the most destructive of such incentives, severing the link between the compensation of the originator and the terms of the loan. Minority borrowers have been disproportionately steered to costly loans, in part because the fees such loans generate for originators are higher than more appropriate products. H.R. 3915 correctly prohibits this practice outright.

I am proud to have been an operational cosponsor of this very ambitious legislation, and I urge my colleagues to support this passage today. However, I would not be telling the truth if I said I lacked any concerns about the potential impact of our ambition over time. Mr. Chairman, I certainly want to thank you, Ranking Member Bachus, Mr. Watt and others for your diligent work in the manager's amendment to address one such concern that I raised during the Financial Services Committee markup of the bill, namely, the extent to which the assignee liability and remedies this bill creates should preempt State law.

We want to make sure that consumers are protected to the greatest extent possible. Historically, many of these protections have been initiated by States, especially in the subprime market.

With that, I would like to conclude. I would like to be clear that this groundbreaking bill should be passed today, and I urge my colleagues to vote for H.R. 3915.

Mr. Chairman, I rise in support of the Mortgage Reform and Anti-Predatory Lending Act of 2007. Each month brings new figures that reinforce the importance of putting in place a Federal legislative and regulatory framework that prevents us from reliving this crisis in the mortgage markets. I have a keen interest in this legislation because of the disproportionate impact of the foreclosure wave on my home State. California's third-quarter foreclosure rate of one foreclosure filing for every 88 households ranked second highest among all States, and reflects a near quadrupling of the number reported for the same period last year. Five of the top 10 metro areas in foreclosure filings are in California.

Clearly, we need to prevent the now widespread practice of getting people into loans they can't afford. H.R. 3915 takes critical steps in this respect, including--for the first time--imposing a Federal duty of care on all mortgage originators and setting minimum Federal standards on all mortgages. Anchoring the bill's approach are newly established minimum standards regarding the borrower's ability to repay and net tangible benefit to the consumer. This is a sound strategy given that Federally regulated mortgage originators have long had to meet similar benchmarks, and not coincidentally, we have seen few problems in that sector of the market.

H.R. 3915 also seeks to reduce the incentives to market inappropriate credit products to borrowers. I am particularly pleased that H.R. 3915--again for the first time--removes the most destructive of such incentives, severing the link between the compensation of the originator and the terms of the loan. Minority borrowers have been disproportionately steered to costly loans, in part because the fees such loans generate for originators are higher than more appropriate products. H.R. 3915 correctly prohibits this practice outright.

I am proud to have been an original co-sponsor of this ambitious legislation, and urge my colleagues to support its passage today.

But I would not be telling the truth if I said I lacked any concerns about the potential impact of our ambition over time. Mr. Chairman, I do want to thank you and Ranking Member Bachus for your diligent work in the Manager's Amendment to address one such concern I raised during the Financial Services Committee markup of the bill, namely, the extent to which the assignee liability and remedies this bill creates should preempt State law. We want to make sure that consumers are protected to the greatest extent possible--and, historically, many of these protections have been initiated by States, especially in the sub-prime market. But we also don't want to shut down the secondary mortgage market that has critical to expanding homeownership nationally.

I appreciate the effort that the Manager's Amendment makes to better strike this delicate balance. The Manager's Amendment now clarifies that the bill does not preempt state laws such as fraud and civil rights statutes. In particular, I appreciate that the Manager's Amendment makes crystal clear that securitizers will be held to account when they directly participate in a fraud--as in the egregious First Alliance case I mentioned at Committee markup. However, attorneys who have been working on predatory lending issues in my district and State for decades, continue to be concerned that the legal meaning of this provision is unclear. As such, federal courts may impart this meaning in ways that roll back important consumer remedies under State law.

This, in turn, raises the question of whether we have yet reached the right balance of Federal rights and remedies in the bill, given that we may be displacing a lot of State and private activity in this financial sector. Certainly, national organizations representing consumers remain concerned about this, and many have declined to endorse the bill. As you have noted, Mr. Chairman, that industry groups seem equally ambivalent about the bill suggests that perhaps we are approaching the proper ``unhappiness quotient'' among the stakeholders. As this bill moves to the Senate and to conference, though, I urge that continue to take seriously and re-examine issues surrounding preemption and strength of remedies.

To conclude, however, I want to be clear that I believe this groundbreaking bill should be passed today. Accordingly, I urge my colleagues to vote for H.R. 3915. Thank you again, Mr. Chairman, for all of your work on this bill.

I am grateful to my friend the ranking member and to the chairman, and I do oppose the manager's amendment and the bill. And I don't think there is any difference of

opinion about the crisis in the mortgage markets in America today. I think the difference is on the impact that this bill will have.

The problem in mortgage markets in America today is that for years we had lenders that were giving teaser rate loans, that were taking no paperwork requirements to prove that borrowers had the ability to buy the home and pay for it. And we had lenders making 100 percent, 110 percent, 120 percent loan-to-value loans. And, obviously, that worked fine when property values were increasing. When property values declined, you have got a crisis.

In essence, what has happened is that we have had this wild galloping horse in the credit markets of mortgages that has gotten loose. Now that horse has gotten very sick. There are none of these loans being made. As a matter of fact, credible buyers with paperwork, with 20 or 30 percent equity, can't get access to mortgage loans today in many instances.

What we are doing for this sick horse is to feed it strychnine. The markets having overreacted, we as Congress are going to pile on and kill the horse with poison. And the difference we have about this bill and this manager's amendment is on the impact it will have.

Does it help poor people, middle-income people that want to get access to homeownership? No.

And I would submit for the Record an article by Star Parker, who entitles this bill, ``How to Limit Homeownership for the Poor.''

Does this bill help existing homeowners? No, because it will decrease credit availability, which means fewer people will get access to loans. There will be fewer buyers for your home. And the law of supply and demand means that all of our homes will decrease in value because there will be fewer people available to buy.

Who does this bill help? Well, this bill does help landlords. Very few people will be able to buy homes in the future. Very few people will qualify for the credit. So if you are a landlord, you should be thankful. It helps lawyers. As the Wall Street Journal said, this is the 1-800 Sue Your Banker Act. This is the lawyers and landlords relief act.

[From Scripps Howard News Service, Nov. 9, 2007]

How To Limit Home Ownership for the Poor

(By Star Parker)

The Mortgage Reform and Anti-Predatory Lending Act of 2007

has passed out of Chairman Barney Frank's House Financial

Services Committee. It's now headed to the full House for a

vote. In the name of protecting the poor from market

predators it will in actuality protect the poor from wealth.

This is yet a new chapter in the grand liberal tradition

that advances the illusion that government micromanagement of

private lives and markets will make us better off. We already

have laws against fraud and theft. But for liberals,

government isn't there to enforce the law. It's there to run

our lives.

The legislation assumes that when private individuals make

mistakes they can't figure out what they did wrong and make

adjustments and that even if they could they wouldn't.

We're going to wind up with new and onerous regulations in

the business of making loans to consumers for purchasing

homes, and as a result, fewer loans will be made and we'll

all be worse off. Those who will be penalized the most will

be the low-income families who the new regulations will

supposedly protect.

Should fraud be permitted in our society? No. Should

government interfere with private individuals' latitude to

determine on their own what risks they wish to take and the

willingness of others to finance those risks? Absolutely not.

Frank's bill crosses far over the line into regulating

private lives and behavior where he and government have no

business.

Why will this hurt the very low-income families it purports

to protect?

We already have plenty of experience with the costs of so-

called consumer protection laws in general and those designed

to regulate mortgage lending in particular.

In a recently published article in the Cato Supreme Court

Review, Professor Marcus Cole of the Stanford University Law

School discusses the fallout of lending laws in Illinois.

The Illinois Fairness in Lending Act passed in 2005 gives

the state oversight authority on loans made in nine

designated zip codes in the state. These zip codes are, of

course, areas in which residents are mostly lower-income

households.

The law places authority in a state bureaucracy to review

all applications for mortgages in these designated zip codes.

The bureaucrats who review these applications determine if

the borrower needs credit counseling and requires the lender

to pay for it if required.

The costs of the counseling are estimated to be as high as

$700 and can delay the processing of the loan up to a month.

The borrower has no option to forego this counseling, whose

objective is ``to protect homebuyers from predatory lending

in Cook County's at-risk communities and reduce the incidence

of foreclosures.''

What's the result?

Cole reports the following: ``Instead of protecting

hardworking would-be homeowners from predatory lending, the

new law protected them from credit. Within just a few months

more than 30 mortgage lenders refused to lend on homes

purchased in the targeted zip codes. Those lenders determined

to service these communities saw a rise in their costs, which

translated into higher interest rates on their loans.''

The purported cure was worse than the disease. Cole goes on

to note that, ``home sales in the designated zip codes

dropped an average of 45 percent in just one month after the

bill took effect. Home prices plummeted, draining relatively

poor but hardworking people of what little equity they had in

their homes.''

The experience is similar in other states where governments

have authorized bureaucrats to insert themselves between

lenders and borrowers. Yes, the number of defaults have

declined. They have declined because the number of loans have

declined.

The Wall Street Journal reports that currently ``80 percent

of subprime loans are being repaid on time and another 10

percent are only 30 days behind.''

These are overwhelmingly loans to low-income families.

Probably, under Barney Frank's new regulatory regime, many of

these loans would not have been made and the families in

these homes would be renting and considerably less wealthy

than they are today.

To quote former Texas Rep. Dick Armey, ``freedom works.''

But it can only work if we let it.

Many have paid and are paying a great price for the errors

and excesses of recent years. We now should allow private

individuals and private markets the opportunity to self

correct, which is what will happen.

If government steps in to pre-empt the market and Barney

Frank is the one to decide who gets loans, the rich will stay

rich, the poor will stay poor, and we'll have one more reason

for already skeptical Americans to question the American

dream.

Mr. Chairman, I yield myself such time as I may consume.

Mr. Chairman, I rise in support of this legislation. I believe that it does, in fact, address abusive practices which, unfortunately, are in our mortgage lending market today. I believe it brings some needed oversight to the mortgage industry.

The legislation that we are considering today is the product, and everyone acknowledges this, industry acknowledges it, consumer groups, Members on both sides, the membership has engaged for over 2 years in an attempt to come together to span political differences, philosophical differences, and to address the very serious problem in the housing finance market.

I want to commend the gentleman from Massachusetts. He has allowed us to fully express our opinions. I believe that this long dialogue which we have had has resulted in consensus legislation which, though not perfect, I believe will achieve two very important, very necessary goals. One is to implement reforms that will offer consumers needed protection against predatory lending practices; and two, I believe, and I sincerely believe, that this legislation will preserve working Americans' access to consumer credit.

I believe that the Members most closely involved in the negotiations which led to the manager's amendment sincerely believe we have achieved these goals. We need not let the perfect be an enemy to the good. Members from both sides will address provisions of this bill which they believe do not satisfy the goal I have described above.

I believe the fact that this legislation fully satisfies neither side is an indication that we are in about the right place in achieving a nonpolitical, legislative remedy to address this issue of such great impact to our economy and our families, both now and moving forward.

In closing, let me say it has always been my view that when faced with serious issues like this one impacting millions of families across America, that Congress has both the privilege and the responsibility of rising above partisanship and acting in the public's interest. With this legislation today, I believe we have done just that.

Mr. Chairman, I reserve the balance of my time.

Mr. Chairman, I recognize the gentleman from California (Mr. Royce) for 3 minutes to speak in opposition to the bill.

Mr. Chairman, I yield 2 minutes to the gentleman from Texas (Mr. Hensarling), who rises in opposition to the bill.

Mr. Chairman, at this time I yield 2 minutes to the gentleman from South Carolina (Mr. Barrett).

Mr. Chairman, I yield 3 minutes to the gentlewoman from Illinois (Mrs. Biggert).

Mr. Chairman, I yield 2 minutes to the gentleman from Texas (Mr. Neugebauer) to speak in opposition to the bill.

Mr. Chairman, I yield 2 minutes to the gentlewoman from Ohio (Ms. Pryce).

Mr. Chairman, I yield 2 minutes to the gentleman from Georgia (Mr. Price) who speaks in opposition to the bill.

Mr. Chairman, I yield 3 minutes to the gentleman from California (Mr. Miller) to speak in support of the bill.

Mr. Chairman, may I inquire as to the remaining time.

Mr. Chairman, I yield 2 minutes to the gentleman from Illinois (Mr. Roskam) to speak in opposition to the bill.

Mr. Chairman, I yield 3 minutes to the gentleman from North Carolina (Mr. McHenry) to speak in opposition to the bill.

Mr. Chairman, at this time I recognize the gentlewoman from West Virginia (Mrs. Capito) for 3 minutes.

The chairman is correct. Section 107 was designed and implemented to give the Federal bank regulators flexibility in implementing the national registry. And it is the intention of the committee, of the entire committee, that, as they do this implementation, that they give proper consideration to its impact on small financial institutions, smaller impact, and that they try to minimize that impact.

Mr. Chairman, I claim time in opposition, although I am not opposed to the bill.

I yield 15 seconds to the chairman of the committee.

Mr. Chairman, I yield 2 minutes to the gentleman from Florida (Mr. Feeney).

Mr. Chairman, I rise in support of the bipartisan manager's amendment. It makes both technical and substantive changes in the legislation, and I think significant contributions. For example, the amendment incorporates language authored by the gentleman from California (Mr. Gary G. Miller). His amendment clarifies the bill's anti-steering provisions to ensure that consumers retain the ability to finance points and fees in connection with a mortgage transaction. It also corrects certain problems in the provisions dealing with renters and foreclosed properties that Mr. Marchant from Texas raised during the markup. And it addresses some of those problems.

The amendment also includes provisions drafted by the gentlelady from Ohio (Ms. Pryce) that will give consumers regular updates on the term of their mortgages and advance notice of any impending interest rate adjustments. Now, these are important improvements in the bill. And I again thank Chairman Frank and the other members who contributed to the manager's amendment, and urge support for the manager's amendment.

I would yield the remaining time that I have to the gentleman from California (Mr. Campbell).

Mr. Chairman, I rise in strong support of this bipartisan amendment offered by the gentleman from Pennsylvania (Mr. Kanjorski). The amendment, among other things, enhances the integrity of the appraisal process, and requires the taxes and insurance on subprime mortgages be escrowed. These are two glaring problems in today's subprime market, and I think both these requirements will go a long way towards making these loans sounder and reducing the number of foreclosures and delinquencies.

These issues are ones that the gentleman from Pennsylvania has worked on for many years. He deserves credit for an amendment that will improve many key aspects of the mortgage origination, servicing, and appraisal process; and I compliment him.

Chairman Kanjorski worked closely with my colleagues, Ranking Members Judy Biggert and Shelley Moore Capito, in crafting the amendment. And the three of them actually offered the amendment that addresses legitimate administrative and operational concerns that have been raised, not only by consumer groups, but by the industry itself. And the mortgage appraisers, or the Appraisers Institute, actually endorsed this measure. And it maintains the underlying bill's strong consumer protection.

And this amendment offers additional strong protections.

I commend all three of our colleagues for their efforts and urge support for the amendment.

Mr. Chairman, I yield back the balance of my time.

I dearly wish that this bill was the one being described by so many people on the other side of the aisle. That sounds like a really tough bill. And this bill, I hope, will become tougher as we go along.

I agree with many over there who said that they support the idea of homeownership and want to make sure that there is a mortgage market that lets people buy homes.

Mr. Chairman, the mortgages we are talking about have nothing to do with homeownership. According to the mortgage bankers themselves, who oppose this bill, 72 percent of subprime loans are refinances, not purchase money mortgages. And only about one in 10 subprime loans is to buy a first home. Lehman Brothers says that 30 percent of the subprime loans entered last year will result in final foreclosure, a family being turned out on the streets by a sheriff because their home was sold at a foreclosure auction at the steps of the courthouse.

Do the math. One subprime loan in 10 helps people buy a home, a first home, get into homeownership. Thirty percent will result in foreclosure. The loans that we need to get at, we need to prohibit, are costing Americans homeownership, not helping with homeownership.

Now, several speakers have said that they think the consumers should make choices, there should be a variety of choices available to consumers. Sometimes they say this bill will shut down market innovation. Well, Americans are for innovation, Mr. Chairman, just as they are for reform. Americans are fundamentally reformers so politicians have figured out to call everything they do a ``reform,'' however obviously contrary to the public interest it is. And now American business has learned to call everything they do an ``innovation,'' regardless of how bad it hurts consumers.

I can think of many wonderful innovations. When we think of an innovation, we think of a scientist in a lab coat coming up with new products.

Mr. Chairman, I am now the age my father was when he died of a heart attack in 1965. There wasn't a thing we could do to help people with heart disease in 1965. But I am on a cholesterol medicine because I inherited from my father high cholesterol that I hope will allow me to outlive my father. I think that drug is an important innovation, and I am glad we made that innovation.

Mr. Chairman, this necktie is an innovation. Ten years ago, you could not buy a silk necktie that was stain resistant. And for those folks like me who tend to miss their mouth from time to time, the cost in new neckties in any given year was hundreds of dollars. But this tie has a nanotechnology process that causes liquids to bead up and roll off rather than soak in and stain. This necktie is an important innovation to me.

But what on Earth do we mean when we say that a mortgage is innovative? It means simply that there is no end to the variety of terms, there is a proliferation of indecipherable terms that are not designed to help consumers.

Alan Greenspan called them ``exotic loans.'' Others have called them ``toxic loans.'' The innovation is not really about allowing consumers to tailor narrowly the loan they get to their specific circumstances. The late Ned Gramlich, a well-regarded former Federal Reserve Board governor, asked why was it that the riskiest loans were being sold to the least sophisticated consumers. It was a rhetorical question. He knew the answer. He knew those loans were being sold to people to take advantage of them, to separate from middle-class homeowners more and more of the equity in their home, to trap them in a cycle of having to borrow and borrow again, and every time they borrowed, losing more of the equity in their homes.

Some of the other speakers have talked about the importance of refinancing out. Mr. Chairman, a mortgage system where people have to borrow money to pay off the mortgage they are in now is not a mortgage system that works.

I thank the gentleman.

I would now like to engage in a colloquy with Mr. Frank concerning this. And, Mr. Chairman, both Mr. Frank and I would deeply appreciate a slow gavel on this particular point.

Mr. Frank, please direct your attention to the language at the bottom of page 5 of the manager's amendment, clarifying the prohibition against payments to loan originators that vary with the terms of the subprime mortgage, which, as Mr. Murphy of Connecticut has already pointed out, is an important antisteering provision. The abuse that the prohibition addresses is the payment by lenders to originators, most often brokers, known as a yield spread premium.

Under widespread practice now, lenders pay brokers an additional percentage point in a yield spread premium for every additional half point in interest on the mortgage above the rate that the borrower qualified for. Although borrowers sign a piece of paper agreeing to the payment by the lender, the broker hands the borrower the paper and tells the borrower what the borrower is signing, and most borrowers never realize that the broker makes more money the more that the borrower pays for the mortgage.

I agree with Mr. Murphy of Connecticut, that is a kickback. It is not a legitimate business practice. It needs to change.

Mr. Frank, as I understand it, the clarifying language in the new subparagraph does not simply permit what the previous subparagraph forbids, but it is directed to limited circumstances and does not allow any additional total compensation for an originator. Just as a buyer may pay discount points at closing to buy down the interest rate over the life of the loan, subparagraph (B) allows a consumer to pay more in interest over the life of the loan in return for lower costs and fees at closing.

Is that correct?

And is it also correct that any payment by the lender to the broker, or to use the language of the bill, any incentive compensation paid by any person to any originator, based on a higher interest rate, is still forbidden?

I am glad that Mr. Frank earlier embraced redundancy as a virtue, but I want to continue even though it may be redundant.

So a mortgage originator under this subparagraph, the one we were speaking of a moment ago, will get paid exactly the same in total compensation, including both the compensation paid by the borrower and the compensation paid by the lender, whether the interest rate is 6 or 8 or 10. Is that right?

And so any compensation paid by the lender will be backed out dollar for dollar from what the borrower had agreed to pay; is that correct?