“Long-term, I believe the focus should be two-fold. First, we need to make balanced reforms to the lending system. Second, we need to restore the fundamental healthy demand for housing, based on people who want and can afford to buy a home…
There are five key areas that are ripe for reform:
- First, mortgage brokers should be licensed. A House-passed bill, supported by the brokers themselves, would create a national registry of loan originators regardless of where they work in the industry. It also establishes strict national standards for loan originators that include criminal background checks, fingerprinting, continuing education and testing.
- Second, predatory lending laws should be strengthened. Clearly we need to tighten the definition and toughen the penalties for ripping people off…The challenge, however, is to get the definitions and penalties right so that we stop bad lending without discouraging the good lending. Where borrowers were defrauded, the fraud should be vigorously prosecuted.
- Third, we should improve mortgage disclosure. Much of the present hangover came from consumers taking on loan products they didn’t understand, payments they couldn’t afford, and/or calculations for pricing and fees that belong in a supercomputer, not a mortgage. As we’re seeing now, when enough consumers get hurt, the industry gets hurt too. So the industry’s long-term financial incentive is to provide more simplicity, transparency, and consistency…
- Fourth, we should improve homebuyer education. The mortgage industry should make a commitment to arm consumers with financial literacy and homebuyer education so they avoid making the wrong mortgage choices in the first place.
- Fifth, we need a private-label market review. While the so-called private market has nearly collapsed from the subprime meltdown, it will rise again. So it’s worth taking a hard look at what happened to allow so much unsustainable lending there. The rating agencies, Wall Street, structured investment vehicles, the creation of instruments to disperse risk that actually magnified risk – these are all due scrutiny and introspection, if not regulation.”