In last week’s Yahoo!Finance story I wrote about a proposal for a Consumer Credit Safety Commission. Because I write a column, I get to come down on one side of an issue occasionally, and this is one I feel really passionate about. I wrote a lot about the mortgage debacle when it first happened, opposing bailouts for homeowners, because I thought the cause was mainly people failing to due their due diligence and taking on mortgages they couldn’t afford.
Then I saw the data that showed that showed many people who qualified for lower-interest mortgages were pushed into high-interest subprime loans by brokers out for the juiciest commissions. And other data that showed, at least at the beginning of the boom, 80 percent of subprime mortgages were refinances — not new homebuyers. In other words, someone who may have had a stodgy 30-year fixed-rate loan but was convinced to refi into a bad mortgage.
Sure there were foolish and greedy borrowers as well as outright fraud. But think how much trouble might have been avoided had mortgage brokers been subject to a simple suitability clause — as registered investment advisors are by the Securities and Exchange Commission. If I tell my stock broker that I want him to invest my money in something conservative, he can’t put me in derivatives. What would have happened if mortgage brokers were required to put borrowers in the best product for which they qualified? Ot if they were required to determine that it’s not suitable to put someone in a mortgage who has no income.
Harvard Law School’s Elizabeth Warren and Amelia Warren Tyagi have written most extensively and eloquently on the need for fair rules in this game, most recently in Harper’s. Here’s my comment on the topic today on Fox Business News.