Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

Senate votes to ban liar loans

By Tami Luhby, senior writer

NEW YORK (CNNMoney.com) -- The Senate voted Wednesday to ban controversial "liar loans," which helped bring down the housing market.

The legislation, part of the broader financial regulatory reform bill working its way through Congress, would require lenders to fully document a borrower's income before originating a mortgage. It would also mandate that lenders verify a borrower's ability to repay the loan.

This would effectively end the origination of no-doc or stated-income mortgages, which many call "liar loans" because borrowers did not have to prove their income. Housing experts point to these mortgages as one catalyst for the housing collapse.

The bill would also prohibit lenders from giving brokers incentives for steering customers to loans with higher interest rates or prepayment penalties.

"Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes," said Sen. Jeff Merkley, D-Ore., co-author of the bill.

The provisions build on Federal Reserve regulations that required lenders to verify the income and assets of subprime borrowers. Those rules, which went into effect in October, did not ban incentive payments, called yield-spread premiums.

"This should make the mortgage market a safer place for consumers," said Julia Gordon, senior policy council for the Center for Responsible Lending. To top of page

Index Last Change % Change
Dow 17,798.49 -14.90 -0.08%
Nasdaq 5,127.53 11.38 0.22%
S&P 500 2,090.11 1.24 0.06%
Treasuries 2.22 -0.01 -0.31%
Data as of 2:07am ET
Company Price Change % Change
General Electric Co 30.36 0.00 0.00%
Bank of America Corp... 17.48 0.04 0.23%
HP Inc 12.61 -0.03 -0.24%
Pfizer Inc 32.79 -0.08 -0.24%
Walt Disney Co 115.13 -3.54 -2.98%
Data as of Nov 27


Sumner Redstone, the media mogul who controls Viacom and CBS, is at the center of a legal dispute. One side says he is practically unable to make decisions for himself. The other says he is "engaged and attentive." More

Gold futures hit a low of $1,051.60 an ounce, yet another reminder of just how out of favor gold has become since its all-time high of nearly $1,890 in 2011. More

Watsi crowdfunds donations to cover healthcare costs of those in need. And it's seeing a surprising trend: micro-donations via the popular Chinese social networking app, WeChat. More

Hive, a startup funded by the UN, is tasked with getting more Americans engaged with the refugee crisis. More

Facebook just increased the amount of paid time off new dads working at its international offices can take. More