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

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,098.45 18.88 0.11%
Nasdaq 4,580.27 22.58 0.50%
S&P 500 2,003.37 6.63 0.33%
Treasuries 2.34 0.01 0.39%
Data as of 4:44am ET
Company Price Change % Change
Bank of America Corp... 16.09 0.08 0.50%
Apple Inc 102.50 0.25 0.24%
Intel Corp 34.92 0.27 0.78%
Facebook Inc 74.82 0.96 1.31%
General Electric Co 25.98 -0.03 -0.12%
Data as of Aug 29

Sections

The deal would value Vice at $2.5 billion. The online media company would also create content for the cable network, delivering a wider audience. More

Gas prices are falling to nearly $3 a gallon in some parts of South Carolina, and that will soon be common in much of the country. More

Netflix told the FCC that its speed on the Comcast network became so slow that customers began dropping their service. More

The Coolest Cooler is the most successful Kickstarter campaign in the site's history, raising $13.3 million from over 62,000 backers. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.