Sen. Elizabeth Warren (D-Mass.) said in an Oct. 29 speech that Congress should consider fortifying mortgage servicing standards to ensure that banks do not backslide on higher-risk lending in the future. She said the qualified mortgage (QM) rule, which requires lenders to verify a borrower's ability to repay by confirming income and assets, needs to be strengthened because the version going into effect on Jan. 10 has skimpy penalties.
"The potential liability associated with writing non-QM loans is relatively small, and in good times, lenders can compensate for those possible losses with higher rates or fees," said Warren, speaking at the Mortgage Bankers Association convention. She used the event to spell out her priorities for housing-finance reform. Any revamp, Warren insisted, should include an explicit government guarantee and solve servicer and trustee problems for modifying home loans. The new set-up also should not favor large banks, which would exacerbate the problem of lenders being deemed too big to fail, she added, and the U.S. guarantee must apply to the entire primary market.