Senate Adds Mortgage Standards To Regulatory Reform Bill

Collections & Credit Risk
May 17, 2010
Kaper, Stacy

As part of the regulatory reform bill under consideration in the U.S. Senate, lawmakers approved an amendment that would prohibit yield-spread premiums, force mortgage lenders to verify borrowers' income, and require a proposed consumer protection agency to formulate new rules guaranteeing borrowers' repayment ability. Consumer groups applaud the amendment because it would cover all mortgages. According to Center for Responsible Lending senior policy counsel Julia Gordon, "We have always thought that any real financial reform would have to include stopping the mortgage abuses that caused this whole problem. The importance of this amendment is that it applies to the entire mortgage market." The amendment, sponsored by Sens. Jeff Merkley (D-Ore.) and Amy Klobuchar (D-Minn.), forces mortgage originators to verify that borrowers have the means to repay the loan for five years, and brokers and loan originators could not earn compensation that varies based on terms aside from the loan principal. Meanwhile, consumer groups have voiced opposition for an amendment that would allow exemptions to the requirement that lenders retain 5 percent of the credit risk when selling loans for securitization.
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