In the debate over how federal government regulators and lawmakers should respond to recent turmoil in mortgage lending, a few good ideas have emerged:
- Mandatory licensing of all mortgage brokers and loan officers. Licensing should be required regardless of whether the individual is self-employed or works for a mortgage brokerage, savings and loan or banking company and should be accompanied by mandatory continuing education and enforcement.
- Prohibition of yield spread premiums, which are commissions or bonus that lenders pay mortgage brokers when they sell borrowers loans at interest rates that are higher than the lowest rate for which the borrower could qualify. Disclosure of YSPs would not be adequate because loan disclosures are already dysfunctional.
- Elimination of the tax liablity on forgiveness of debt in short sales. This relief should be available only for homeowners who have been forced to sell their principal residence due to a severe financial hardship such as a loss of previously steady employment, disability or major illness. State tax authorities should conform to federal law.