Hearings and debate continued almost non-stop last week on Capitol Hill as House leaders pushed controversial legislation to create a Consumer Financial Protection Agency with far-reaching powers affecting mortgages and real estate.

House Financial Services committee chairman Barney Frank, a Massachusetts Democrat, is sponsoring the main legislative proposal to create the agency and has promised to report the bill out of committee, and possibly to the House floor for a vote, before the August congressional recess.

Frank and many other Democrats believe a new agency is needed to prevent a reoccurrence of the severe damage done to home owners, buyers, mortgage borrowers by the sort of lax regulatory oversight of mortgage products that led to the mortgage meltdown and housing bust.

But last week, banking and mortgage industry trade groups warned that Frank's legislation, which is based heavily on a proposal from the Obama White House - could do more harm than good and stifle innovation.

Chris Stinebert, CEO of the American Financial Services Association, argued that the costs of creating and running a new overseer of mortgage products and credit cards "could be staggering."

Though details of the legislation may change as it transits through the House and Senate, the proposed new agency almost certainly would play a huge role in housing finance, touching all home buyers, sellers, Realtors and lenders.

Here are just a few of the areas it's likely to oversee:

First, it would have primary federal regulatory oversight of all mortgage products offered nationwide -- that includes banks, mortgage brokers, mortgage companies, credit unions and most private lenders.

Very likely the agency would identify a limited number of mortgage types it considers standard and relatively safe for consumers, such as 30-year fixed rate mortgages with mandatory full documentation and strict underwriting, and FHA and VA loans.

All other non-standard loans, especially those with variable payments, less than full documentation or fluctuating interest charges, would be subject to extra regulatory attention.

The agency also is likely to take over a number of consumer regulatory powers that are currently with other federal agencies. They include the Real Estate Settlement Procedures Act, which covers all aspects of home closings, good faith estimates and bans kickbacks, PLUS the Truth in Lending Act, and the Equal Credit Opportunities Act.

The new agency's powers are potentially so broad that one House critic, Congressman Jeb Hensarling, a Texas Republican, called them "Orwellian," and the equivalent of a "politburo" that would decide what's good -- and what's bad -- for all consumers, even those with special borrowing needs and sophistication.

Published: July 20, 2009

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.