(Adds details, background)
WASHINGTON, April 29 The top financial panel of
the U.S. House of Representatives on Wednesday passed
legislation that will increase regulation of the mortgage
industry and offer borrowers more protections.
Under the legislation, mortgage finance companies would be
forced to hold some default risk and would not be permitted to
pass all the costs of failing loans onto Wall Street and
The Financial Services Committee passed a similar measure
in 2007 and it was ratified by the House, but a companion bill
never cleared the Senate.
Lawmakers have been debating reform of the mortgage finance
system since the housing market ended a five-year rise and
began to decline in 2006.
The legislation must be ratified by both the House and
Senate before it becomes law.
The measure passed the committee with 49 votes in favor and
21 votes against the reform. The bill is expected to go before
the full House on May 7, when lawmakers will have another
change to propose modifications.
Mortgage lenders will be forced to hold 5 percent of the
risk of default under the new legislation. But bank regulators
will set the rules for that risk-sharing, Representative Barney
Frank, chairman of the committee, told Reuters on Tuesday.
Another provision of the legislation would demand that
mortgage refinancing terms provide a "net tangible benefit" to
Frank, a Democrat from Massachusetts, said that provision
was still a bit unclear but its meaning would be found in the
application of the law.
"Is it vague? To some extent, but that's what you do with
the law and then they are defined by practice," he said. "In
terms of net tangible benefit I would say to the person doing
the loan, 'Would you tell your mother to do it?'"
On Thursday, the Senate is expected to debate a separate
housing measure that would give bankruptcy judges the power to
Banks and credit unions have fought hard to stop that
measure and Democrats behind the plan have not yet won enough
votes to advance the bill, according to a Senate aide close to
(Reporting by Patrick Rucker; Editing by Dan Grebler)