Congress is puzzling over home loan reform

Posted on February 09 By MLP Blog

WASHINGTON – Congress is looking at reforms to risky home lending practices, although a House subcommittee hearing on Tuesday suggests lawmakers are still sorting out the complexities of the mortgage market and wondering whether reforms will be helpful.

With the number of foreclosures nationally jumping 47 percent in March from a year ago, lawmakers are weighing whether new lending rules are needed or whether the market is already self-correcting.

Last week, Sens. Charles Schumer, D-N.Y.; Sherrod Brown, D-Ohio; and Bob Casey, D-Pa., introduced a bill that would mandate tougher federal standards for mortgage lenders, even as Senate Banking Committee Chairman Christopher Dodd, D-Conn., was emphasizing that increased regulatory oversight and voluntary reforms by lenders are preferable to legislation.

The mortgage industry, in general, has argued that reform could restrict lending in the near term, hurting low-income borrowers -the intended beneficiaries.

Big financial institutions have in recent years increasingly bought home loans in bulk from lenders and bundled them into securities to be sold to investors, theoretically spreading risk and helping provide more funds for lending.

Critics say the creation of this secondary market in mortgages caused housing lenders to be too lenient in evaluating high-risk or subprime borrowers.

Consumer advocates say investors in bundled or pooled mortgages should be held legally accountable for encouraging lax lending practices.

Found here.

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