One member of the Securities and Exchange Commission had colorful criticism for his colleagues Wednesday as they voted to finalize a long-delayed mortgage rule that has been significantly loosened following industry concerns that it would crimp lending.
“[R]egulators working to adopt a final version of a proposed Henhouse Protection Rule should not abandon their independent judgment by capitulating to the views imposed upon them by a barrage of letters sent in by the Feed the Foxes Foundation and their allies,” SEC Commissioner Daniel Gallagher said in his dissent from the vote.
Gallagher, a Republican appointee who has been a commissioner since 2011, said that the rule, which requires that mortgages meet a certain set of standards or that lenders retain a stake in loans that are securitized and sold, would lead to many low-quality loans being regarded as having a “new government imprimatur.” That, in turn, would re-create the problems in the mortgage industry that led to the 2008 financial crisis. The rule the SEC voted on Tuesday was part of the 2010 Dodd-Frank financial reform law intended to prevent future crises and taxpayer bailouts.
Gallagher went on to criticize his colleagues for going along with the banking regulatory agencies that were tasked with writing the rule. Of the six agencies the law mandated to write the regulation, the SEC was the holdout in approving the final mortgage rule.
“It is time for this commission to declare that it is no longer willing to play the frog to the prudential regulators’ scorpion,” Gallagher demanded in his prepared remarks. “We are increasingly called upon to cross the river with them on our back by going along with their ideas, only to have them sting us halfway to the opposite shore, drowning us both.”
The other GOP-appointed commissioner, Michael Piwowar, also dissented from the vote.
SEC Chairwoman Mary Jo White said the final rule struck the “right balance between two of the central purposes of the statutory mandate — protecting investors and not unnecessarily inhibiting the residential mortgage market.” But White also added that it would be necessary to continue reviewing the rule to assess its impact. The rule passed with White’s vote and those of her two Democratic-appointed co-commissioners.
Three of the other agencies responsible for approving the rule did so Tuesday. The two remaining regulators, the Federal Reserve and the Department of Housing and Urban Development, were set to approve the rule later Wednesday.
