Portfolio Lending and Mortgage Access Act

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.

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.

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

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.

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

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.

Madam Speaker, I yield 3 minutes to the gentleman from Illinois (Mr. Hultgren), who is also, I believe, a sponsor of the legislation.

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

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.

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.

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.

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.

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.

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.