Throwing Out the Baby with the Bathwater

There have certainly been many abuses in the mortgage industry, and those are the part of the reason we are in this subprime mess today, but Washington may be using too heavy a hand in their "solution".
The U.S. House of Representatives is considering a bill that will fundamentally change the way mortgage brokers are paid. The bill, H.R. 3915, is known as the Mortgage Reform and Anti-Predatory Lending Act of 2007.
It has some flaws, but many of its provisions are worthwhile.
A mortgage broker is often confused with a mortgage banker. A broker does not actually lend money. A broker acts as a liaison between a consumer who needs financing for a mortgage loan and a lender who has money available to finance the purchase. The broker brings the lender and borrower together.
Mortgage brokers receive a loan fee from either the borrower or the lender, or both. Borrowers may pay brokers an origination fee based on a percentage of the loan amount. In some cases, the broker receives a fee from the lender. Fees paid by the lender to the broker are known as yield spread premiums (YSPs). It is this fee that brokers are concerned about losing. While some analysts agree that YSPs provide a useful avenue to cash-strapped borrowers, others say that many borrowers frequently do not understand that they are paying the YSP in the form of a higher interest rate, and that the exact amount of the fee is not known until the borrower is already committed to the transaction.
The bill will prohibit the "steering" of borrowers to loans that are not in the consumers' best interest and call for licensing and registration of mortgage originators, including brokers and bank loan officers. In addition, the new legislation will set a minimum standard for all mortgages, which states that borrowers must have a reasonable ability to repay.
While brokers and bankers have been accused of causing the current mortgage meltdown by granting loans to unqualified borrowers, the intense pressure to provide these mortgages to Wall Street in the form of mortgage-backed securities also has contributed to the problem.
The bill also expands and enhances consumer protections for "high-cost loans" under the Home Ownership and Equity Protection Act and includes important protections for renters of foreclosed homes. It would require criminal background checks, testing to demonstrate basic knowledge of loan products, and continuing education and professional ethics training for all who originate mortgage loans.
George Hanzimanolis, the president of the Mortgage Brokers Association says, "The mortgage industry has changed dramatically in recent years, but the laws and regulations designed to protect consumers have lagged behind. These reforms will help modernize the regulatory system and drive bad actors from our industry."