The Senate on Monday passed a bill to overturn a $8.9 billion Obama-style regulation on loan modification software by a vote of 78 to 27.
The bill, which was introduced by Republican Sen. Ron Johnson, is the latest step in a fight that began after mortgage giant Freddie Mac filed a lawsuit against the Obama administration in late 2011, claiming that the software violates the Computer Fraud and Abuse Act.
The suit was later dismissed by a federal judge in March, but Johnson’s bill would allow banks to apply for loan modifications, which can include forbearance, a step that was originally prohibited by the CFA Act.
Johnson, a Republican from Wisconsin, argued in the Senate vote that the bank filing was frivolous and that it was a blatant attempt to thwart a federal court ruling that he says has allowed the industry to move ahead with the software-driven mortgage refinancing process.
“I’m going to bring the House and the Senate back to the floor tomorrow to amend the Bank Secrecy Act to allow banks, or any other entity that provides or provides credit card services, to apply to a bank to receive an FICO score from a third-party vendor and the bank will then issue a mortgage modification that will allow them to refinance their loans,” Johnson said in a statement after the vote.
He added that the bill would “give the taxpayer a second chance to ensure that the government is not taking advantage of its citizens in this country.”
“This is a critical step forward in reforming the CFCA, but it’s not enough,” Johnson added.
In March, the Consumer Financial Protection Bureau sued the bank, accusing it of using a “sham” loan modification program to get rid of the consumer protections that had been in place.
The bureau claimed that the company’s program allowed the bank to refraud borrowers and also helped to push down mortgage rates.
The agency also argued that the bureau did not have authority to regulate loan modification because it lacked authority to enforce the CCA.
On Monday, the House voted 219-183 to override the decision.
The Senate also voted 219 to 193 to override it.
The House bill has no chance of passing the Senate, however, and it is unclear how the Senate will respond.
The vote came hours after the Senate voted 217-205 to overturn the bank’s settlement with the bureau.
Johnson has been outspoken about the bank-related litigation, calling the bureau’s settlement a “political move” and saying the bank has “failed to provide any evidence of fraud.”
In a letter to Congress on Tuesday, Johnson said that the new bill would require a third party, such as a third of a mortgage lender or the Federal Deposit Insurance Corporation, to conduct an independent assessment of whether a modification would be necessary or desirable.
“The bureau has provided no evidence that it has ever approved or reviewed the FICO scores of anyone who has applied for a modification,” Johnson wrote.
“There is no evidence to support the bureau asserting that a loan modification would not be beneficial.”
The bureau said it would not comment on the legislation.