Senate Adds Mortgage Standards to Reform

American Banker
May 13, 2010
Kaper, Stacy
P. 1

The Senate took action on May 12 to write home-loan standards into its financial regulatory reform legislation. On a 63-36 vote, the lawmakers approved an amendment from Sens. Jeff Merkley (D-Ore.) and Amy Klobuchar (D-Minn.) that would oblige mortgage originators to verify borrower incomes and ensure their ability to repay their loans for five years. Loans would be considered properly underwritten only if they satisfied that requirement and if the fees were 3 percent or less than the loan amount. Borrowers could sue lenders for actual and enhanced damages if points and fees topped that threshold. "This would have a pretty significant impact," said attorney Laurence Platt of K&L Gates. "It would not only create a federal underwriting standard, the penalties for not following it are pretty substantial." The provision also abolishes yield-spread premiums, which reward loan originators or brokers based on loan terms other than the principal amount. The consumer protection bureau would be tasked with writing and enforcing the new loan standards. Consumer groups welcomed the Senate moves. "We have always though that any real financial reform would have to include stopping the mortgage abuses that caused this whole problem," stated Julia Gordon of the Center for Responsible Lending. "The importance of this amendment is that it applies to the entire mortgage market."
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