Treasury Proposes State-Rating Mortgage Panel

The Treasury Department is proposing a federal Mortgage Origination Commission that would rate the adequacy of state regulation and licensing of mortgage lenders and brokers as part of a larger plan to restructure the financial regulatory system. Treasury Secretary Henry Paulson said the MOC would provide "important information to the marketplace about the strength of each state's mortgage compliance standards." If a state is rated "weak," mortgages originated in that state "should be viewed cautiously before being securitized," he said. The secretary noted that a large percentage of "problematic" subprime loans were originated by state-licensed lenders. (The Office of Thrift Supervision, which oversees thrifts, would be incorporated into the Office of the Comptroller of the Currency under the Treasury plan.) The "powerful" new commission, coupled with the Federal Reserve's Home Ownership and Equity Protection Act rules to ban abusive lending practices, "should go a long way in preventing recent issues from recurring," he said. The Conference of State Banking Supervisors responded that the Treasury plan "disregards" recent improvements in state licensing standards and reporting systems. In addition, the CSBS supports legislation currently under consideration in Congress that would strengthen the states' initiatives.