today about the housing market is spot-on, I think. Let me highlight a few passages,
since most of you aren’t going to read all 4,300 words:
Recent surveys have shown that as many as 50 percent of the borrowers who
have gone into foreclosure never had a prior discussion with a mortgage counselor
or their servicer. That must change.
The 50% number, if true, is ridiculously high: it should – and can –
come down to zero. This is partly a problem with borrowers in denial, but it’s
much more a problem with servicers. As Paulson says later on in his speech,
"not all servicers are staffed for aggressive loss-mitigation". If
banks and private-equity companies are buying up servicers, they should be closely
regulated to make sure that they invest a lot of time and money in loss mitigation.
We must also take steps to make more affordable mortgage products available
for struggling homeowners. In August, the President renewed his call on Congress
to pass FHA modernization to make affordable FHA loans more widely available.
To facilitate mortgage workouts, the President has also called on Congress
to temporarily eliminate taxes on mortgage debt forgiven on a primary residence.
This particular tax break, I think, is eminently justifiable. It’s piling insult
onto injury to charge income tax on the equity that individuals have lost in
their home.
We need simple, clear, and understandable mortgage disclosure. We must identify
what information is most critical for borrowers to have so that they can make
informed decisions. At closing, homebuyers get writer’s cramp from initialing
pages and pages of unintelligible and mostly unread boilerplate that appears
to be designed to insulate the originator or lender from liability rather
than to provide useful information to the borrower. We can and must do better.
The most critical facts, including potential future monthly payments, should
be on a single page in clear, easy-to-understand language, to be signed by
the borrower and the lender. In my judgment, this may have prevented many
of the problems that we are seeing today.
This is self-explanatory, and quite right. Such a development would certainly
help in the quest to keep brokers honest. Which brings me to this:
We need to bring a higher level of integrity to the mortgage origination
process. The development of a uniform national licensing, education, and monitoring
system for all mortgage brokers is worth considering.
This is the one part of the speech where I feel Paulson does not go far enough.
Yes, a national licensing system for brokers would be a good idea. But there
aren’t any teeth to what Paulson is proposing. I say that brokers should be
given a fiduciary duty over their borrowers.