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Todd Ballenger

Excerpt from Paulson's Speech Today:

Mortgage Origination Process
Another issue that needs attention is the mortgage origination process. Simply put, that process was broken. We are aggressively addressing the immediate problem, working to increase the availability of affordable mortgage financing, prevent avoidable foreclosures and to minimize the economic disruption of the housing correction. We concluded that it was also appropriate to put forward a proposal to address the policy issues arising from the current turmoil, to avoid a recurrence of recent events and to respond to the fact that a very large percentage of the problematic subprime mortgages originated in the past four years were originated by state-regulated entities.
Mortgage origination is one of the best case studies for the importance of regulatory structure. It raises the question of the proper balance between federal and state oversight, and requires a balancing of innovation, consumer choice and expanded access to credit with protecting consumers from predatory lending and deceptive or incomplete disclosure practices. I have reviewed and analyzed a number of ideas to deal with this process. We thought quite seriously about federal preemption of enforcement authority but concluded in this case it was best to focus on the immediately achievable.
We are recommending retaining state-level regulation of mortgage origination practices, but we are also recommending creating a new federal-level commission, the Mortgage Origination Commission. This commission, the MOC, would be led by a director appointed by the President. The Commission membership would include federal banking regulators and appropriate state representation. Legislation should either set forth or task this Commission to establish minimum standards which should include personal conduct and disciplinary history, minimum educational requirements, testing criteria and procedures, and appropriate license revocation standards.
In addition to standards, the MOC would provide important information to the marketplace about the strength of state's mortgage compliance standards. The MOC would evaluate, rate, and report on each state's adequacy for licensing and regulation of participants in the mortgage origination process. These evaluations would grade the overall adequacy of a state system by descriptive categories, indicating a system's strength or weakness. These evaluations could provide further information regarding whether mortgages originated in a state should be viewed cautiously before being securitized. This powerful Commission, coupled with the Federal Reserve's strong regulatory proposal regarding the HOEPA rules, should go a long way in preventing recent issues from recurring.

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