Barney Frank and Spencer Bachus, leaders of the House Financial Services Committee, are reportedly in agreement on the need for legislation that would hold Wall Street investors who purchase mortgage-backed securities liable for predatory loans.
Making investors liable for predatory loans could reduce their use, but might also increase the cost of borrowing and make it harder for subprime home buyers to obtain legitimate loans.
In an interview with Bloomberg News, Frank said that while Congress must preserve home buyers’ access to credit, the impact on “the ability of people in the bond market to make money is simply not a factor.”
Frank, the Massachusetts Democrat who chairs the committee, said he expects Congress to pass a bill addressing predatory lending this year. The committee has scheduled an April 17 hearing on subprime lending.
Bachus, the ranking Republican on the committee, told Bloomberg News that he would support legislation creating “assignee liability,” allowing victims of predatory lending to seek damages from lenders who originated the loans and investors who purchased them. New Jersey has had a similar law on the books since 2003, which Bachus said could serve as a model.
Bachus warned against getting “too aggressive” with assignee liability, saying it’s important to preserve liquidity in the subprime lending market.
Bloomberg News reported that sales of mortgage-backed securities backed by subprime loans are down 37 percent through March 29, to $79.3 billion compared to the same period last year, citing Citigroup Inc. figures.
Frank proposes tapping mortgage repurchasers Fannie Mae and Freddie Mac to create a $500 million-per-year affordable housing fund. The proposal is part of a bill overhauling oversight of the government-sponsored entities approved by the committee March 29.