“Lawmakers reach Consensus on Key Mortgage Reforms”

By Kate Cavallaro

The House and the Senate are working on legislation which attempts to reform certain mortgage industry practices. The final draft of the bill is expected to be complete in early July 2010.  The final bill will incorporate a number of changes and even outlaws certain industry practices.  For instance, the bill will require mortgage lenders to adhere to a “net tangible benefit underwriting standard” which is intended to ensure that lenders make loans that benefit consumer borrowers.  Moreover, the bill requires that all “mortgage originators, including brokers and loan officers, be appropriately registered when selling mortgages, and that they designate their home loans with unique mortgage registry identifiers.”  In addition, the bill imposes that “mortgage compensation can only be financed if all originator compensation is paid by the borrower, not third parties.”  This legislation will also give the Consumer Financial Protection Bureau the authority to define a “qualified mortgage”—i.e., loans that can be purchased by federal agencies.  Finally, the new legislation will also incorporate provisions that subject mortgage originators—both individual loan officers and brokers—to sanctions if these originators are “not properly registered, violate compensation restrictions, or steer borrower into unsustainable loans.”