Senate Adopts Measure Aimed at Fixing Mortgage Industry

The Senate on Wednesday voted to get rid of two shaky mortgage practices that helped lead to the worst recession in 70 years.
By a 63-36 vote, U.S. Senators approved a measure that bans mortgage lenders from getting kickbacks for offering consumers higher interest rates on loans, and also forces borrowers to prove they can repay their loans through tax returns, pay stubs or bank documents.
Supporters of the bill argued that many of the foreclosures and bad mortgage-backed securities that hurt the housing market, and in turn the economy, were a result of consumers who were given a higher-rate mortgage than they could afford, called liar loans. These loans allowed consumers to state their income and receive a higher interest rate, rather than wait for lenders to confirm the information.
Brokers were encouraged to push borrowers into those high-interest loans, even if they had good credit, and received incentives called yield spread premiums to do it.
A measure rejected Wednesday was one that would have required home buyers to make a minimum downpayment of 5 percent on their loans. The National Association of Realtors said forcing home buyers to come up with 5 percent would further hurt the housing market.
“As our nation continues to recover from the worst economic downturn since the Great Depression, realtors are cognizant that lax underwriting standards brought us to this point and must be curtailed,” said NAHB officials. “However, we caution that swinging the pendulum too far in the opposite direction may reverse our fragile recovery.”