House Committee Passes Mortgage Reform Bill

The House Financial Services Committee has passed by a 49-21 vote a mortgage reform bill that favors the origination of prime fixed-rate mortgages and discourages subprime and nontraditional lending. The basic premise of the bill (H.R. 1728) is to require lenders to retain 5% of the credit risk on "nonqualified" mortgages that are sold or securitized. However, the committee expanded the definition of "qualified mortgages" to include government insured mortgages, such as Federal Housing Administration loans, and loans purchased or securitized by Fannie Mae and Freddie Mac. Lenders don't have to retain capital against qualified mortgages. The committee also approved an amendment by Rep. Leonard Lance, R -N.J., that would ensure all jumbo loans aren't considered subprime because of their high interest rates. In addition, the bill gives federal regulators the discretion to make exceptions to the 5% credit risk retention requirement. The full House of Representatives is expected to vote on the bill on May 7.