Borrower Bail Out & Mortgage Lender Regulations
Thursday, March 13, 2008SUSIE GHARIB: The Bush administration is proposing stronger rules to oversee mortgage lenders. Treasury Secretary Henry Paulson announced a series of reforms today designed to prevent a repeat of the recent mortgage meltdown. The changes include tougher disclosure requirements for banks and Wall Street firms and a nationwide licensing system for mortgage brokers. The rules also call for improvements by credit rating agencies, which have been criticized for not doing their due diligence. Paulson says the new rules are designed to prevent future excesses.
HENRY PAULSON, TREASURY SECRETARY: The objective here is to get the balance right; regulation needs to catch up with innovation and help restore investor confidence, but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it.
GHARIB: Those in need may soon get help from lawmakers on Capitol Hill. The chairman of the Senate Banking Committee and his counterpart in the House are pushing an aggressive plan to help struggling borrowers. Senator Chris Dodd and Congressman Barney Frank say in the midst of an economic slowdown, now is the time to shore up the housing market. And, as Darren Gersh reports, they are proposing billions of dollars in new Federal loan guarantees to do it.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The proposals put forward by two influential members of Congress could help up to one million homeowners avoid losing their homes. Barney Frank, the chairman of the House Financial Services Committee, says it's time to aggressively use government loan guarantees, even if it means some borrowers who made mistakes get Federal help.
REP. BARNEY FRANK, CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE: If you insist on each one of those who made an imprudent decision getting the full measure of punishment for that, then the whole economy suffers.
GERSH: The voluntary plan would provide up to $300 billion in loan guarantees from the Federal Housing Administration. Lenders who agree to write down home loans to the current market value would receive a cash payment. Credit-worthy borrowers would be able to refinance a smaller loan. To prevent home flipping, the FHA would get a temporary second lien on the property, giving the government a portion of any increase in the property's value. Housing finance expert Alex Pollock says the program should avoid a deeper downward spiral in home prices, but stresses the program must remain temporary.
ALEX POLLOCK, HOUSING ANALYST, AMERICAN ENTERPRISE INSTITUTE: There should be money left to send back to the Treasury, if you do this right, with a small profit.
GERSH: Housing advocate John Taylor sees no need for a government guarantee when the private sector can write off bad loans now.
JOHN TAYLOR, CEO, NATIONAL COMMUNITY REINVESTMENT CORPORATION: Sell them at market rate, or what the mark to market, what the precise value of these mortgages are. That alone will cut a lot of these loans down by 30 percent.
GERSH: The Treasury has not ruled out the plan proposed today, but the Bush administration is reluctant to commit taxpayer dollars to bail out struggling homeowners. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
