Lending industry testifies on Obama financial regulatory reforms.(Briefing Book)

On July 15, the House Financial Services Committee convened a hearing to get the banking industry perspective on proposed financial regulatory reforms that have been offered by the Obama administration.

Testifying before the committee, John Courson, president and chief executive officer of the Mortgage Bankers Association (MBA), said that introduction of the administration's proposals as well as its bill for a consumer-protection agency (H.R. 3126) "are important steps on the path to regulatory reform." But he added, "We also believe that before this committee takes action, much more work needs to be done."

Courson cautioned, "These proposals must not be rushed through. They must be judiciously considered so reform is done right."

Courson noted that MBA had earlier crafted its own proposal for mortgage regulatory reform, which is called the Mortgage Improvement and Regulation Act (MIRA). He told the committee the MIRA legislative proposal would close existing regulatory gaps by requiring national regulation of nondepository lenders and mortgage brokers. The measure would also establish "rigorous, uniform standards to assure greater transparency, regularize prudent lending practices and prohibit those that are harmful or even predatory."

In turning to the proposed Consumer Financial Protection Agency, Courson said it would be charged with regulating "an extraordinarily broad array of 'financial activities'" that would include, among other things: mortgage servicing, providing real estate settlement services and leasing personal or real property.

Courson told the House committee, "A top concern for MBA is that CFPA's rules would serve as a 'floor,' not a 'ceiling' for future state legislation. States would be encouraged to enact additional laws and rules--exacerbating the patchwork of laws that provide uneven protection and increased costs to consumers."

Courson offered some additional potential concerns about creating a separate consumer-protection regulator, including: 1) such an entity needed to be designed to work well within the new regulatory scheme in a comprehensive effort to improve regulation; 2) establishment of such a regulator along the lines proposed could worsen the patchwork of federal and state laws; 3) the bill does not require a single combined Real Estate Settlement Procedures Act (RESPA)/Truth in Lending Act (TILA) disclosure for consumers, although it suggests working toward that result; 4) borrower protections in H.R. 3216 could stem innovation; and 5) separating consumer protection from prudential financial supervision may fail to achieve an appropriate balance of those two concerns.

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