Congress Moves to Restrict Access to Home Loans

Washington, D.C., November 15, 2007—Today the U.S. House of Representatives will likely pass a new law that would limit access to home mortgages in response to disruptions in the market for so-called "subprime" loans. Lenders, rather than applicants themselves, would be required to determine whether loans are considered appropriate for the home buyer’s circumstances.

"While much about mortgage and credit issues is complex, the response to this nannyist solution is simple," said John Berlau, Director of the Competitive Enterprise Institute’s Center for Entrepreneurship. "We should say no to solutions that treat borrowers as children. This bill clearly goes beyond disclosure to limit options of homebuyers if the government deems them, in the bill’s words, ‘inappropriate.’ The government should punish fraud, but leave lenders and borrowers to work out what loans work best for both parties."

The House of Representatives is scheduled today to vote on the bill, the Mortgage Reform and Anti-Predatory Lending Act. Among other provisions, the bill would conflict with the Community Reinvestment Act, which Congress passed to encourage banks to extend loans in low income neighborhoods. Holding lenders legally responsible for a borrower’s default would be a very strong incentive to cease issuing mortgages in marginal neighborhoods all together.

"This is an absurdly patronizing ‘government knows best’ bill," said CEI Senior Fellow Eli Lehrer. It will likely reduce homeownership in all groups and, particularly, in minority communities."