As the joke goes, there’s good news and bad news. Which would you like to hear first?
Upon hearing no answer from the readers of Open Market, I’ll begin with the bad news. On November 15, the U.S. House of Representatives passed the “Mortgage Reform and Anti-Predatory Lending Act” as an answer to mortgage woes. This “absurdly patronizing government-knows-best bill,” as my colleague Eli Lehrer called it in a CEI press release, goes beyond the goal of improved disclosure to ban mortgages that are, in the bill’s words, “inappropriate” for borrowers.
The borrowers, however, would not be deciding what is “inappropriate.” That is left for the government to decide after the fact, and to punish lenders through penalties or legal judgments. Needless to say, not only would this limit mortgages choices, it would likely make home loans much less available.
As I wrote in National Review the day before it was voted on, this bill “is on a collision course with the principle of economic freedom, that is the aim of so many policies conservatives have pushed” such as school choice and personal retirement accounts. Yet when the bill came to the floor, more than 60 Republicans — no doubt spooked by the word subprime — voted “aye.”
Now for the good news, or silver lining. 127 members of the House — all GOP — stood their ground and voted against the bill. That’s way better than in 2002, when only three voted against the draconian Sarbanes-Oxley Act stampeded through Congress after the Enron scandal. (The three were Rep. Ron Paul,R-Texas; Rep. Jeff Flake, R-Ariz., and then-Rep. Mac Collins, R-Ga.). The 127 were mostly members of the conservative Republican Study Committee (RSC), often the free-market conscience of the Congress. RSC leader Jeb Hensarling, R-Texas, made the case to the Capitol Hill newspaper The Politico that the bill would “outlaw the American dream for many struggling families” and “drive investment away.”
The other good news is that in addition to CEI, many other free-market groups are standing up for consumer choice in mortgages. CEI signed a letter with 13 other groups — including Americans for Prosperity, Americans for Tax Reform, and the Council for Citizens Against Government Waste — requesting that members of Congress neither “reward financial imprudence” with a bailout nor “intervene to prohibit risk-taking that could give some families greater economic opportunity.” The National Taxpayers Union, also a signatory to this letter, now has a page explaining the facts and pitfals of regulatory “solutions” to subprime mortgage woes.
In addition Heritage Foundation land policy expert Ron Utt has a new study on the House bill’s burdens. He makes similar points to CEI on the bills’s paternalism. Utt argues the bill requirement of “appropriate” loans could be especially intrusive for borrowers. Lenders “that fail to require applicants to submit to a complete physical, a session with a marriage counselor, and an employer interview could face uncertain risks in the courts,” he writes.