Around the blogosphere the last couple of days, there has been talk of Barney Frank’s predatory lending bill that is supposed to come up for a vote on Thursday. The thought is that this is one of those below-the-radar, complicated things that we should get behind and cheer.

True, what is going on is below the radar. But, unfortunately, that is because the sainted Barney Frank- along with the Dem controlled Congress- is on his way to selling out distressed homeowners, all on behalf of immunizing the biggest culprit in the foreclosure crisis: Wall Street.

Yesterday, I had my dad write on OpenLeft why he recently got into an heated argument with Frank, and why this bill needs to be stopped. It was adapted from a letter that he sent to our Philly reps on why this bill is a bad idea.

The punchline is that Philly Reps, with thousands of constituents going into foreclosure, need to help stop this bill:

1) It is America's homeowners, not the investment machinery that has caused the current crisis, that need protection.

The Frank bill does define new and important standards in mortgage lending. However, two of the most important restrictions--on lending without regard to repayment ability or "net tangible benefit" to the borrower--Chairman Frank has apparently decided to immunize holders of the loan from any of the remedies that would apply to these two restrictions. In other words, as long as you didn't actually make the loan, you are not responsible if it later turns out that these new standards were violated, that, for example, the borrower is a senior citizen on Social Security and that the loan was unaffordable or purposeless from the beginning.

This makes no sense. It is my experience that the original lender is NEVER the entity that is foreclosing, and is often out of business at the time the abusive quality of the loan is discovered. To be meaningful, any lending standards applied to the front end of a loan must be enforceable against subsequent holders of the loan, particularly when the homeowner is being threatened with a foreclosure. Given that it is precisely the secondary market that has driven the demand for the abusive loans now going bad, it is unconscionable that this very market would be protected from irresponsible and destructive lending practices.

The long and short of it is that much of the foreclosure crisis lies at the feet of Wall Street. Insulating them from any responsibility, while going after mortgage brokers is a little like protecting drug cartels while going hard after low-level drug pushers. Sure, the dealers might be guilty, but does it make sense then to protect the people at the top of the organizational pyramid? Make no mistake, without Wall Streets recent (last 10-15 years) heavy involvement in the mortgage market, this crisis does not exist. And, given that loans are instantly sold off once they are made, these protections will in fact help Wall St. keep on looking the other way when the next abusive loan product comes down the pike.

So, no going after Wall St, the cartel that caused the crisis. Well, at least while Congress has sat on its ass for the last ten years, activists have made headway on the State level, so we still have state remedies... Ooops, not anymore:

2) The mortgage industry itself is using this bill a vehicle to provide Wall Street and investors pre-emption against the state laws that have, in the absence of Congressional action during all these years, provided the only legal protection against predatory lending.

Currently, the Frank bill not only insulates the secondary market from the new ability-to-pay and net-tangible-benefit standards, but also, amazingly, pre-empts any state law that currently provides such protections as against secondary holders. Many states, such as North Carolina and New Jersey, have passed laws providing protections in those areas. The industry is now trying to crush those laws. Here in Pennsylvania, the Banking Department has announced a new regulation that would prohibit mortgage lending that occurs without verified evidence of the borrower's ability to repay the loan. This is the first state effort to address the problem since the legislature pre-empted a strong, Philadelphia anti-predatory city ordinance in June 2001. This important first step will hopefully remove from Pennsylvania the scourge of the so-called "no-doc" loans where income is fabricated on a loan application the broker or lender gets the borrower to sign at the closing table. My hope has been that this new regulation would create a foreclosure defense in those circumstances where that occurs. If the Frank bill passes, however, that defense may be pre-empted-at least that's what the foreclosure firms will argue.

Insulating the secondary market is the wrong thing to do. And at the very least, more expansive protections at the state level should be encouraged, not destroyed. While the GOP Congress spent years ignoring the issue, advocates and activists worked hard all over the Country to tackle predatory lending. The irony of a Democratic Congress now pre-empting our efforts is a bitter bill to swallow. Please help us insist that there is no federal preemption of our laws. If this kind of preemption is the quid pro quo for a federal bill, then I say, to hell with a federal bill.

The GOP Congress did not act. In response, activists around the Country made important headway. And now, Barney Frank, the supposedly wonderful progressive Representative from Massachusetts is going to sell out current and future struggling homeowners by preempting those State laws.

This is not sexy stuff. Neither was the Bankruptcy Bill. But make no mistake about who this bill protects.

Reps Brady, Fattah, Schwartz, Sestak and Murphy: Please oppose this bill.