Senate Moves To Ban YSPs, No-Doc Loans

New amendments approved by the Senate Wednesday would ban yield-spread premiums and stated-doc mortgages, as well as exempt qualified residential mortgages from risk-retention requirements.

By a 63-36 vote, the Senate passed an amendment authored by Sens. Amy Klobuchar, D-Minn., and Jeff Merkley, D-Ore., that prohibits originators and brokers from accepting payments based on interest rates or other loan terms. The amendment also would require lenders to document income and other underwriting standards to ensure that borrowers can repay their loans, putting an end to products commonly known as "liar loans."

"We took a huge stride forward today in the fight to restore fairness for homeowners and strengthen the financial foundations of our families," Merkley said in a statement. "I look forward to seeing this amendment become law so that never again will hidden steering payments put millions of homeowners on the fast track to foreclosure."

The Senate rejected an amendment proposed by Sen. Bob Corker, R-Tenn., that would have required borrowers to make 5% down payments on mortgages. Democrats rejected the amendment based on a provision that would have eliminated a section referring to risk retention on securitizations.

Under an amendment introduced by Sen. Mary Landrieu, D-La., and approved by the Senate, however, mortgage products meeting standard underwriting criteria (e.g., fixed-rate, adjustable-rate (ARM) and jumbo mortgages) would be exempt from the risk-retention requirement. For other higher-risk loans, such as negative-amortization products and option-ARMs, lenders would be required to retain up to 5% of the credit risk.

Yet another amendment approved Wednesday was one introduced by Sen. Mike Crapo, R-Idaho, which would direct regulators to consider risk-retention forms and requirements in order to ensure that regulators consider the unique nature of the commercial mortgage-backed securities (CMBS) market.

The Senate also passed by a 90-9 vote a bipartisan amendment introduced by Klobuchar and Sen. Kay Bailey Hutchison, R-Texas, that would ensure state-chartered banks and bank holding companies with less than $50 billion in assets may choose Federal Reserve supervision.

"Community banks are vitally important components of our banking system and economy," Hutchinson said in a statement. "Their importance is not limited to each family or small business that benefits from their services, but to the Federal Reserve, which uses this information about the health of a bank's economy when making monetary policy considerations."


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