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Laying out the Administration's Plan to Reform Housing Finance

Tommy A. Duncan
Feb 14, 2011

Fortunately for those of us in the industry, the administration’s position closely follows and mirrors much of the path the industry should take as outlined by the Mortgage Bankers Association. As of this month the Treasury Department and the Department of Housing and Urban Development has issued its much anticipated “Reforming America’s Housing Finance Market, A Report to Congress.” The purpose of the paper is to lay out the Administration’s plan to reform the housing finance market in America to better serve the needs of the public and, equally important, put the housing finance market back on secure footing. The plan says that the government’s role should be limited to “robust oversight and consumer protection,” to assure that the nation’s economic health is never threatened by fundamental flaws and/or unbridled, risky and unsustainable programs and lending. The government believes that private markets should be the primary source of mortgage credit and should bear the burden for losses. Their position is one that in effect, will eventually wind down and eliminate Fannie Mae and Freddie Mac. In conjunction with that idea, Reuters broke the news yesterday of the plans I am talking about today. In general terms, this paper discusses a variety of options but one of them includes an option to create an insurance fund for mortgage backed securities that is similar to the FDIC. More can be found on B Many of the buzz words on Fannie Mae and Freddie Mac reform revolve around “gradual,” “private sector,” and, “no one wants to spook the fragile housing market.” Also of particular interest today is on-going discussion on TILA Reg. Z compensation regulations, The focus this week has been on Section 226.36 (d)(2) regarding compensation that is received directly from the consumer. There appears to be continuing questions arising regarding the difference between commissions that might be paid on a transaction versus a base salary or hourly wage for a loan officer. More on this can be found here. And in that light, questions have been coming up and being asked about what happens if an originator decides he or she does not want to follow the new compensation regulations? The regulations can be found here: Section 129B of the Truth in Lending Act is amended by inserting after subsection (c) (as added by section 1403) the following new subsection: ”(d) LIABILITY FOR VIOLATIONS. ”(1) IN GENERAL.-For purposes of providing a cause of action for any failure by a mortgage originator, other than a creditor, to comply with any requirement imposed under this section and any regulation prescribed under this section, section 130 shall be applied with respect to any such failure by substituting ‘mortgage originator’ for ‘creditor’ each place such term appears in each such subsection. ”(2) MAXIMUM.-The maximum amount of any liability of a mortgage originator under paragraph (1) to a consumer for any violation of this section shall not exceed the greater of actual damages or an amount equal to 3 times the total amount of direct and indirect compensation or gain accruing to the mortgage originator in connection with the residential mortgage loan involved in the violation, plus the costs to the consumer of the action, including a reasonable attorney’s fee.”. It seems like the questions about the future of compensation will continue to be discussed for a while. Rumor has it that the National Association of Mortgage Brokers has effectively nudged the House Financial Service Committee to examine the Federal Reserve’s regulation. In a statement from the Committee, “the Committee will examine the implementation of proposed rules issued by the Federal Reserve governing mortgage origination compensation which becomes effective April 1, 2011.” Stay tuned here for more as it becomes available. It is not over yet. Related articles Housing Reform Plan to Dissolve GSEs Submitted by Obama Administration (
Feb 14, 2011