Tags: Roubini | Others | Mortgage | Standards

Roubini, Others Call for US Mortgage Standards

Wednesday, 22 Dec 2010 07:34 AM

A group of investors and prominent academics on Tuesday urged the creation of national standards for U.S. residential mortgages to help borrowers who are having trouble getting home loans.

The group, in a letter to Federal Reserve Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, and a host of other U.S. officials, said the recent foreclosure document processing fiasco, in which banks are accused of using "robo-signers" to sign hundreds of unread documents a day, demonstrate an urgent need for action.

"Problems of this magnitude are a threat not only to the economic recovery, but to the safety and soundness of all insured depository institutions," the group, which includes dozens of academics, including Nouriel Roubini of New York University, Dean Baker of the Center for Economic Policy Research, and Anthony Sanders of George Mason University, said in the letter.

"The chaotic situation in the mortgage market today demands immediate action to ensure all parties are treated fairly and to restore the confidence needed to support a recovery in real estate markets and the entire U.S. economy," they said.

The group wants officials to move swiftly to finalize rules governing the way U.S. residential mortgages are originated, sold and serviced that were mandated as part of Dodd-Frank Act that overhauled Wall Street regulation.

The letter, dated Tuesday, is an effort to push forward what is expected to be a long and complicated rulemaking process, due to completed in the spring.

Fed Governor Daniel Tarullo earlier this month said it "may be warranted" to consider adopting a set of national standards for mortgage servicers, the firms that collect loan payments.

"We agree with Governor Tarullo. The time to act is now," the group said in the letter.

They said that "a dearth of credit is causing a serious lack of confidence among potential homebuyers."

A key component of the Wall Street overhaul legislation involves a "qualified residential mortgage," which would be exempt from new rules that require lenders keep at least some portion of any loan on their own books instead of selling loans off entirely to a third party.

Lawmakers inserted the provision to try to put a lid on risky lending by making sure loan originators would share some of the burden of any loans that went bad. Lenders do not like these requirements, known as "skin-in-the-game," because they cut into profits.

Sheila Bair, chair of the Federal Deposit Insurance Corp, told a congressional panel earlier this month that clarity on the definition of a "qualified residential mortgage" could diminish the natural conflict between the servicers who collect mortgage payments mortgages and the investors who own the loans.

Predetermined practices could help avoid instances when a mortgage is serviced to the benefit of one type of investor over another or where the servicer may be protecting its own interests over investors, Bair said.

The coveted designation is meant to help set a standard for securities that avoids pitfalls of the past, and promote greater liquidity for U.S. mortgages by allowing loans to be sold and freeing up lenders to lend again.

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A group of investors and prominent academics on Tuesday urged the creation of national standards for U.S. residential mortgages to help borrowers who are having trouble getting home loans. The group, in a letter to Federal Reserve Chairman Ben Bernanke, Treasury Secretary...
Roubini,Others,Mortgage,Standards
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2010-34-22
Wednesday, 22 Dec 2010 07:34 AM
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