Legislative bull's eye: Mortgage lenders, brokers
The subprime crisis has generated heat on the Hill to prevent abusive lending in the future.
NEW YORK (CNNMoney.com) -- The subprime crisis has put lawmakers under pressure to do something not only to help homeowners who could lose their homes but also to nail the guys who created the mess.
While there's lots of blame to go around, lawmakers are likely to focus on how to rein in lenders, brokers, appraisers and, not insignificantly, mortgage investors.
Senate Banking Committee Chairman Christopher Dodd (D-Conn.) last week proposed a predatory lending bill.
That bill is geared toward permanently expanding mortgage borrower protections and weeding out unscrupulous lenders.
Among other things, Dodd's bill would:
Jaret Seiberg, a financial services analyst at policy research firm Stanford Group, said Barney Frank (D-Mass.), chairman of the House Financial Services Committee, is also expected to propose a reform bill with somewhat similar provisions.
In addition, Seiberg said, Frank also may include provisions that address mortgage securitizers (those who bundle and sell loans as securities). They would be held liable if they buy loans that violate the bill's provisions unless they can show they took steps to avoid buying predatory or deceptive loans. (What readers are saying about government's responses to real estate problems)
"This [provision] is intended to force securitizers to police nonbank lenders," Seiberg wrote in research note.
Many also argue that the robust appetite on Wall Street for mortgage-backed securities encouraged subprime growth, because banks didn't have to keep such risky loans on their books and could just sell them to investors as part of bundled packages.
Seiberg noted, however, that liability provisions are what could prove to be the major sticking point in any mortgage reform legislation.
Right now, the Dodd proposals are likely to serve as a template for any Senate bill, Seiberg wrote. And, he added, "if delinquencies and foreclosures rise appreciably in the coming months, the bill could get much worse for mortgage lenders."