Lawmakers Reach Consensus on Key Mortgage Reforms

Tue, Jun 15, 2010


By: Carrie Bay

Lawmakers have promised to provide transparency into the process of reconciling the Senate and House versions of bills to overhaul the nation’s financial regulatory system.In line with that commitment, the House Financial Services Committee has released a statement outlining the measures that have been approved so far, including several key mortgage reforms.

The final bill, which is now close to 2,000 pages long, outlaws many of the industry practices that marked the subprime lending boom. It requires mortgage lenders to adhere to a “net tangible benefit underwriting standard,” essentially ensuring lenders make loans that benefit the consumer.

It also establishes a simple, straightforward criterion for all home loans: lenders must ensure that borrowers can repay the loans they are sold. And it mandates that the

new consumer protection agency issue anti-steering regulations for mortgage originators.

The bill would require that all mortgage originators, including brokers and loan officers, be appropriately registered when selling mortgages, and that they designate their home loans with unique mortgage registry identifiers.

The reconciled legislation merges the language of the House and Senate bills on originator compensation. It clarifies that mortgage compensation can only be financed if all originator compensation is paid by the borrower, not third parties. The borrower must also pay the entire fee by financing it. The bill permits “compensation through rate,” as long as these two stipulations are met.

As laid out in the reform legislation, the newly created Consumer Financial Protection Bureau will have sole authority to define a “qualified mortgage,” meaning those that can be purchased by federal agencies and the GSEs.

The bill also makes mortgage originators, including individual loan officers and brokers, subject to damages if they are not properly registered, violate compensation restrictions, or steer borrowers into unsustainable loans. Fines for such infringement can go as high as three times the originator’s compensation.

President Obama is expecting a final version of the reform legislation on his desk by the July 4th holiday. Both Senate and House leaders have said they are working to make that deadline.

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