Obama’s Consumer Financial Protection Agency
June 22nd, 2009 Categories: Real Estate News, Sacramento Real Estate
New Regulator will govern all aspects of the mortgage lending process.
From DSNews last week:
President Obama’s broad proposal for financial regulatory reform calls for the creation of a new regulatory body, the Consumer Financial Protection Agency. The federal supervisor would have far-reaching oversight and enforcement authorities over the entire residential mortgage financing industry.
The new agency would govern all aspects of the mortgage lending process. According to a fact sheet issued by the administration, the Consumer Financial Protection Agency will require lenders to offer borrowers “plain vanilla” home loan products with simple terms and straightforward pricing. All homebuyers will be provided with a single, integrated federal mortgage disclosure to adequately present risks and benefits of mortgage products.
The regulator would ensure mortgage brokers offer borrowers the best available mortgage loans, that they can clearly afford. Practices such as yield spread premiums would be banned. The administrations says these types of payments are “unfair” and “encourage mortgage brokers to push consumers into higher priced loans than they qualify for.” Prepayment penalties, which can lock borrowers into bad loans, would also be prohibited.
The new agency would also be responsible for ensuring companies who bundle mortgages and sell them to investors as securitizations retain five percent of the credit risk to prevent lenders from offloading unsustainable mortgages to the secondary market.
The Consumer Financial Protection Agency would have the authority to write rules across bank, non-bank, and independent firms to promote a level playing field and higher industry-wide standards. The agency’s regulations would apply nationwide to all lenders, and would serve as a floor, not a ceiling with respect to state laws, meaning individual states’ legislatures could enforce their own tougher mortgage lending rules.
The administration said the need for the Consumer Financial Protection Agency became apparent after widespread abuses in subprime mortgage lending contributed significantly to the current financial crisis. The financial crisis, in turn, revealed inadequacies in consumer and investor protections across the entire mortgage lending industry, officials said.
