Stricter Standards Sought for Lenders, Brokers

· The potential for higher future monthly payments based on the structure of the loan program itself.

A suitability standard might also prohibit brokers and others from steering less-sophisticated borrowers to higher-cost mortgages than those for which they could otherwise qualify, such as pushing them into risky and complicated subprime loans when they could qualify for prime rates and simpler programs.

While many consumer advocates favor adoption of a suitability standard, lenders generally think the idea is fraught with negatives. Steve O'Connor, a senior vice president for the Mortgage Bankers Association, said that while "every loan officer has the responsibility to make sure a borrower has the capacity to repay the loan," a federally imposed suitability standard inherently would be "vague and subjective," and would limit borrowers' ability to shop for mortgages that fit their objectives as they -- not a loan officer -- see them.

Roy DeLoach, executive vice president of the National Association of Mortgage Brokers, said: "The consumer ultimately is the only person able to choose the mortgage most suitable to [his or her] specific and unique circumstances."

Worse yet from a mortgage lending perspective, DeLoach said, a suitability test "could lead to accusations of discrimination. [It] would blanket mortgage originators with the fear of being sued, cause a number of good loans to be declined, and lead to limiting access to credit."

Frank said the specific elements and tests involved in creating national consumer protection standards for the mortgage field are still under discussion by Democrats and Republicans on the Financial Services Committee.

One bedrock principle he thinks will be essential, however: Stricter liability for brokers, lenders and the bond investors who buy pools of mortgages.

According to Frank, "you can't just make a loan and then sell it" to investors, forget about it and expect no legal liability for putting people into a mortgage that never made sense for their situation.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.