Hundreds of thousands of families lost their homes because of loans that were often not fully explained or under¬stood. Beyond the Mortgage Meltdown distills the origins and nature of the crisis in the housing market. Senior Fellow James Lardner highlights the complicity of regulators and lawmakers in the genesis of the mortgage epidemic, and warns that bolder steps will be needed to stem the rate of foreclosures along with its broader economic impact to protect both markets and consumers against future catastrophe.
Proposals for a bold government response to the mortgage crisis include:
Prohibit or sharply limit prepayment penalties in high-cost loans.
Ensure that regulations cover all financial actors, including hedge funds, mortgage securitizers and loan brokers.
The originator of any mortgage should have a stake in the result. Securitizers should also bear a reasonable share of the risk of default.
The key characteristics of a loan need to be laid out clearly and briefly to borrowers.
Lenders should be required to offer a simple and safe standard-issue mortgage to avoid the “tyranny of choice” currently operating in the mortgage market. If borrowers rejected this default mortgage, the lender would face additional disclosure requirements and penalties for inappropriate loans.
It’s time to establish a single regulatory body for mortgage lending. Borrowers and lenders alike deserve a watchdog that can give full time and attention to the job.
