How a moderate Mitt Romney says he’d regulate Wall Street

Last night, Mitt Romney styled himself as a moderate centrist who would—of course—support regulating Wall Street. "There are some parts of Dodd-Frank that make all the sense in the world," Romney said..Romney didn't get too specific about what he liked about Dodd-Frank or his own version of financial reform.  But he finally did offer one very concrete example of the kind of regulation that he would support—and presumably preserve in some form—and it would certainly put him at odds with the right flank of his party.  

(Source: Richard Drew/Associated Press)

The problem with Dodd-Frank, Romney said, wasn't simply that it was too much bad regulation, but that it was too vague when it came to good regulations:

Dodd-Frank correctly says we need to have qualified mortgages, and if you give a mortgage that's not qualified, there are big penalties, except they didn't ever go on and define what a qualified mortgage was.

It's been two years. We don't know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. It's hurt the housing market because Dodd-Frank didn't anticipate putting in place the kinds of regulations you have to have. It's not that Dodd-Frank always was wrong with too much regulation. Sometimes they didn't come out with a clear regulation.

So Romney essentially came out in favor of a new provision under Dodd-Frank, the Qualified Mortgage rule, which lays down new standards that lenders can use to determine if potential homebuyers can actually pay off their mortgages. The idea is that lenders shouldn't be offering mortgages to homebuyers who can't actually afford them, and that potential homebuyers shouldn't be able to take those risks either.  

As such, Romney shed some new light on the kind of regulations that he would support, going well beyond the vague principles for financial reform that his economic plan laid out. Romney's comment that the law as written isn't specific enough and has taken too long to come out reads more as a criticism of process than substance, and it's one that some supporters of the regulation would share as well.

But Romney also risked putting himself at odds with the banking industry and conservative Republicans he's successfully allied himself with so far. The American Banking Association, for one, claims that the proposed qualified mortgage rule would "dramatically harm credit availability, the viability of the mortgage lending business and the housing recovery." Rep. Jeb Hensarling (R-Tx.), chair of the House Republican Conference, singled out other new mortgage rules for criticism in July, declaring that the Qualified Residential Mortgage regulation "will increase mortgage interest rates by one to four percentage points, according to Moody's Analytics"; conservatives claim it would penalize buyers by forcing them to cough up a bigger downpayment.

So it will be worth seeing whether Romney continues on this defiantly centrist course and break from the conservative orthodoxy that's directed so much of his campaign to date. After all, Romney has repeatedly vowed to abolish the very agency that's writing and enforcing the qualified mortgage rules—the new Consumer Financial Protection Bureau. Would moderate Mitt agree?

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