Why my fight with Barney Frank should be your fight too

by: Irv Ackelsberg

Tue Nov 13, 2007 at 16:19

( - promoted by Chris Bowers)

I am writing regarding Matt Stoller's post about predatory lending and the Barney Frank bill that is to come to a vote this week in the House.  In fact, this weekend Barney Frank and I had a heated exchange at the National Consumer Law Center's annual conference in Washington.  I think you should know why I was so angry at Congressman Frank, and why it is important that his bill is stopped or strengthened.

First, a little background on myself and the issue.  I spent 30 years at Community Legal Services (CLS) in Philadelphia, largely with a focus on consumer law.  CLS has more lawyers working on saving homes from predatory mortgages than any other law firm in the country.  I have personally represented or advised hundreds of victims of the subprime scandal, and I have testified before the Senate Banking Committee and the Federal Reserve Board. For years, we have been warning about the dangers-both to our neighbors and to the larger economy-of  the out-of-control subprime mortgage market.  While it is good to see the Congress finally taking up the issue, I have strong reservations about the work product that is making its way to the floor for a vote.  An already weak bill is getting weakened even further, and it is undercutting the hard work that activists have made on a state level for the past ten years.

Here are my principal worries about this bill, and why I am so upset at the role Rep. Frank is playing:

1)  It is America's homeowners, not the investment machinery that has caused the current crisis, that need protection.

The Frank bill does define new and important standards in mortgage lending.  However, two of the most important restrictions--on lending without regard to repayment ability or "net tangible benefit" to the borrower--Chairman Frank has apparently decided to immunize holders of the loan from any of the remedies that would apply to these two restrictions.  In other words, as long as you didn't actually make the loan, you are not responsible if it later turns out that these new standards were violated, that, for example, the borrower is a senior citizen on Social Security and that the loan was unaffordable or purposeless from the beginning. 

This makes no sense.  It is my experience that the original lender is NEVER the entity that is foreclosing, and is often out of business at the time the abusive quality of the loan is discovered.  To be meaningful, any lending standards applied to the front end of a loan must be enforceable against subsequent holders of the loan, particularly when the homeowner is being threatened with a foreclosure. Given that it is precisely the secondary market that has driven the demand for the abusive loans now going bad, it is unconscionable that this very market would be protected from irresponsible and destructive lending practices. 

2)  The mortgage industry itself is using this bill a vehicle to provide Wall Street and investors pre-emption against the state laws that have, in the absence of Congressional action during all these years, provided the only legal protection against predatory lending. 

Currently, the Frank bill not only insulates the secondary market from the new ability-to-pay and net-tangible-benefit standards, but also, amazingly, pre-empts any state law that currently provides such protections as against secondary holders.  Many states, such as North Carolina and New Jersey, have passed laws providing protections in those areas.  The industry is now trying to crush those laws.  Here in Pennsylvania, the Banking Department has announced a new regulation that would prohibit mortgage lending that occurs without verified evidence of the borrower's ability to repay the loan.  This is the first state effort to address the problem since the legislature pre-empted a strong, Philadelphia anti-predatory city ordinance in June 2001.  This important first step will hopefully remove from Pennsylvania the scourge of the so-called "no-doc" loans where income is fabricated on a loan application the broker or lender gets the borrower to sign at the closing table.  My hope has been that this new regulation would create a foreclosure defense in those circumstances where that occurs.  If the Frank bill passes, however, that defense may be pre-empted-at least that's what the foreclosure firms will argue.

Insulating the secondary market is the wrong thing to do.  And at the very least, more expansive protections at the state level should be encouraged, not destroyed.  While the GOP Congress spent years ignoring the issue, advocates and activists worked hard all over the Country to tackle predatory lending.  The irony of a Democratic Congress now pre-empting our efforts is a bitter bill to swallow.  Please help us insist that there is no federal preemption of our laws.  If this kind of preemption is the quid pro quo for a federal bill, then I say, to hell with a federal bill.

I will check in periodically to see if I can answer any questions that you might have.

Irv Ackelsberg :: Why my fight with Barney Frank should be your fight too

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People think Frank is ultra-liberal, and that's a mistake (0.00 / 0)
Frank's by no means a blue dog, but he's very much a centrist on many issues.  This isn't a criticism-- I don't think he's ever tried to pretend he's anything but what he is-- a socially liberal, economically moderate Democrat who's part of the Washington power structure.

He's very smart and very good at what he does but, unfortunately, this is the sort of thing he does. 

I probably have better things to do with my time than this.

my bad (0.00 / 0)
OMG, thank you for this.  Absolutely they trade home mortgages like baseball cards on the secondary market.  I believe derivatives are also used heavily.


The Economic Populist

Amazing the sphere hasn't majored on this (0.00 / 0)
No, it's not, actually.

For one thing, like the journos who infest DC, spheroids lurve process and hate policy.

I plead guilty to that, too.

But, if I have my nose pointed towards the substantive issue behind a piece of legislation, I love it, because that gives a point to analyzing the process stuff.

And this is a prime case in point.

HR 3915 was introduced on October 22. But there have been these predatory lending bills knocking around for a long time.

Just after the big bankruptcy bill S 256 got passed in 2005, there was a predatory lending bill HR 1295 that was put forward, but made no progress.

A key element of HR 1295 was the pre-emption of state legislation safeguarding borrowers.

That bill got nowhere - but now, we get the delayed gratification!

(The pre-emption technique crops up in all sorts of contexts - from memory, there was a food safety pre-emption bill in the offing around the time that HR 1295 was being discussed.)

The immediate process question raised by HR 3915 is: why now? Why introduced so late in the year, when the impossible logjam was already evident?

I assume that the intention was to slip the text into some omnibus bill under cover of chaos.

And, I'm pretty sure, there are loads of similarly dubious texts which will get the same treatment!

Caveat Sixpack!


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