Good Proposal by Chris Dodd on the Subprime Mess

Chris Dodd, chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, has put forth interesting proposals on the current housing/mortgatge^* mess.

• Require lenders to assess borrowers' ability to pay the mortgage even after a rate reset if they're signing up for an adjustable-rate loan.
• Require lenders to verify subprime borrowers' income with documentation. Earlier this year, the Federal Reserve
• Prohibit pre-payment penalties and yield spread premiums (YSP) in subprime loans. A pre-payment penalty is the fee some lenders charge if you end up paying off your mortgage early, including if you choose to refinance. It sometimes can be as high as six months' worth of mortgage payments. A YSP is the difference between the the lowest interest rate a borrower qualifies for, and the actual rate he gets. A broker's fee may be based on it.
• Prohibit steering borrowers to more expensive loans when they qualify for lower cost ones.
• Hold lenders liable for appraisals and for brokers' actions when the broker is paid based on yield spread premiums.

These are good policies, and they would have been much better had they been implemented, or at least proposed, 2 or 3 years ago. to the degree that these can be made retroactive, they should be (you could make prepayment penalties immediately illegal, for example).

More importantly, it places much of the onus upon those who profited through their highly leveraged, and ruinous, financial products.

It's taken him up a notch in my view of the presidential candidates.

^*To all but the blind, this horse has left the subprime stables, and is roaming the prairie.