Securitizers Have More Skin in Game
Washington-Homeowners and mortgage investors would not be the only ones with "skin in the game" if housing secretary Shaun Donovan's plan for the proposed Consumer Financial Protection Agency comes to pass.
To insure responsible lending, Secretary Donovan would require both mortgage brokers, funding lenders and securitizers to have a vested interest in the loans they touch.As outlined by the HUD secretary at the National Association of Real Estate Editors' annual conference here last week, the CFPA projected by President Obama would insist that brokers be paid "over time" based on the continued performance of the loans they originate rather than at the closing table.
At the same time, lenders and mortgage aggregators would be compelled to retain a 5% vested interest in the loans so they would be rewarded for making good loans and penalized for making bad ones.
To avoid conflicts of interest, brokers, who have been held up in some quarters as the poster child for abusive lending practices, also would be bound to what Secretary Donovan called "a duty of execution" to their clients.
The HUD secretary said neither he nor the president had any desire to prescribe exactly how brokers should be paid. But they "have to have a duty" to provide affordable products. "Putting a borrower in a mortgage [the broker] knew from day-one the borrower could not afford cannot be allowed to continue," he told the gathering of housing and real estate writers from throughout the US.