U.S. Reps. Michael Capuano, Barney Frank and Stephen F. Lynch have indicated that housing and mortgage lending will be top priorities of the House Financial Services Committee now that the Democrats control Congress. Regulatory relief for banks also is likely to be discussed.
The business community has “had things their way” for a long time – “and now they don’t,” says U.S. Rep. Barney Frank, D-Mass., a resident of Newton who, with a wave of ranking Democrats taking over Congressional committees after November mid-term election results put them in control, was named chairman of the U.S. House Financial Services Committee last week.
The 25-year member of Congress and senior Democrat on the committee said he’s worked with businesses all along. Now, he wants to make the playing field “broader” to include employee and consumer interests.
“If you want to use a metaphor, my way is about walking a two-way street,” he said, responding to one Washington analyst’s recently reported comment that Democrats will have to “walk a tightrope” if they don’t want to be perceived as anti-business in the 2008 elections.
In recent interviews with Banker & Tradesman, Frank and the two other Massachusetts Democrats who sit on the powerful Financial Services Committee spoke of the direction it will take and priorities it will address come January.
It’s been a dozen years since Democrats led either house of Congress – and by extension, its committees – according to re-elected U.S. Rep. Michael Capuano of Somerville.
“There’s a feeling of cautious euphoria,” he said.
He and his fellow committee members “want to make sure we don’t overplay our hand,” Capuano said.
But U.S. Rep. Stephen F. Lynch of South Boston, just elected to his third term, predicted significant shifts. For example, he expects the Financial Services Committee’s subcommittee on oversight will see more “active engagement” within its jurisdiction, which includes monitoring certain federal regulators and federally regulated financial industries including securities, insurance, banking and housing.
Frank said the multifaceted committee will see the most change “not so much in the banking area as in housing.” He wants to tie the loan maximums at government-backed mortgage purchase programs and insurers such as Fannie Mae, Freddie Mac and the Federal Housing Administration to regional home prices, rather than the current single, national rate.
Lynch identified affordable housing as “one of the top five issues” Financial Services Committee members will deal with next year. Capuano agreed, saying that “my interest is in getting housing back on the agenda.”
Capuano said he “hesitates” to use the term “‘affordable housing’ Â… especially in Massachusetts – I don’t know that there is any.”
Lynch said level-funding of federal public housing in recent years and so-called “expiring-use” public housing (federally subsidized as affordable housing when built, but only required to stay “affordable” for a set period of time) have been discussed among committee members as problems that have “left people in the lurch.”
Allowing more tax credits for affordable housing also will be a priority of the committee, predicted Massachusetts Bankers Association President Dan Forte, who’s known Frank professionally almost as long as he’s been in Congress (Forte has been with MBA since 1985).
“Discriminatory lending” is another big concern for Frank, who said he wants to curb predatory mortgage lending practices.
On the mortgage front in general, Forte said he hopes the Financial Services Committee will look at extending the Community Reinvestment Act – which currently sets standards for banks doing mortgage and other types of lending in low- and moderate-income communities – to credit unions and all mortgage lenders.
“In Massachusetts, 42 percent of banks get a ‘high’ rating [from the Massachusetts Division of Banks] for loaning to low- or moderate-income borrowers,” he said, compared to just 17 percent of credit unions. Mortgage lending companies are not rated, he said.
Massachusetts Mortgage Bankers Association Executive Director Kevin Cuff said MMBA looks forward to working with Frank to create uniform national standards for the mortgage industry, which, he said, would ease national mortgage lenders’ “frustrations” in trying to adapt to “50 different state standards.”
In a twist some describe as atypical for a member of a party associated with more, rather than less, government involvement in business, Frank said he also wants to provide regulatory – and compliance cost – relief to banks.
Easing the Currency Transaction Reporting requirement of the 2006 Financial Services Regulatory Relief Act, and lobbying federal regulators to ease certain financial disclosure requirements of the 2002 Sarbanes-Oxley Act, which increase compliance costs on publicly-traded companies such as stock-owned banks, are two priorities set by Frank.
“We definitely will revisit that bill,” Frank said of the Financial Services Regulatory Relief Act.
Lynch said Sarbanes-Oxley is a “huge cost burden” on small and mid-sized companies.
“I’ve heard of instances of small start-ups using 20 percent of their capital for compliance,” he said. “I think there is a general consensus that we need to do something. It’s just a matter of which fixes we adopt.”
For example, the committee might consider revising the current definition of a “material breach,” he said, or look at reducing the frequency of financial accounting reports required by the act.
The Financial Services Committee also will hold hearings about Basel II, the 2004 international agreement that revised bank risk management standards across 13 countries, in the coming year. Frank said the accord is of concern to “a number of Massachusetts banks.” U.S. Sen. Richard Shelby, chairman of the Senate Banking Committee, told American Banker in March that Congress was concerned that Basel II would lower bank capital and threaten bank safety and soundness.
Frank also told B&T that, in his opinion, “the guidance given by regulators urging banks to be more careful about commercial loans was a mistake.”
‘Grand Bargain’
Following the formal release of the guidance by the Office of the Comptroller of the Currency, the Federal Reserve, and the Federal Deposit Insurance Corp. last week, Frank and U.S. Rep. Spencer Bachus, R-Ala., issued a joint statement indicating “disappointment” in the new rules.
“Our committee’s hearing on this topic earlier this fall showed that there was no real basis for the approach they are taking, which we believe may unduly discourage lending, including multifamily lending, that plays an important social role,” Frank said in the joint statement.
Frank, along with U.S. Rep. Paul Gillmor, R-Ohio, also has been active on another matter of great interest to banks in Massachusetts and the nation: whether Wal-Mart or any primarily commercial company should be allowed to form an industrial loan company, or ILC – a narrowly defined banking entity.
Frank recently wrote to the FDIC to extend the moratorium on such formations beyond its current expiration date in January, noted MBA’s Forte, who added that the association admires Frank’s “deep understanding” of banking and finance matters and his ability to “get things done” – even across the political aisle.
“It presents a conflict of interest for a commercial company to make loans to companies” it might be competing with in the future, Forte said of MBA’s opposition to allowing retailers to form ILCs.
Capuano said the history lesson he keeps in mind is one from the 1920s, when, he said, the line between retailers and bankers was blurred.
“It happened all the time Â… before the big crash” leading to the Great Depression of the 1930s, he said. “Once you get that kind of history lesson, when you forget it, it’s a huge problem.”
“I don’t see any lack of banking facilities to my constituents that Wal-Mart could address,” said Capuano, but added that he’s happy to listen to anyone’s concerns.
Another idea of Frank’s that has received media attention is the so-called “grand bargain.” Under the general proposal – which a Frank aide said will first take the form of joint committee hearings to discuss give-and-take – businesses would be asked to agree to greater wage and benefit increases for workers in exchange for Democrats agreeing to ease certain regulations.
“The problem is that economic growth has given all the wealth to a handful of people,” Frank explained. “And as a result, we’re in deadlock.”
He said the impasse might not be so easy to break.
“We are in a very negative period, and I am trying to break that mindset,” Frank said.
“It’s not like we’re talking about moral issues like abortion or gay rights,” he added. “These are economic issues. When it’s about dollars and not morals,” he predicted, the discussion might be easier.
