Maybe all the criticism and jokes about Senator Chris Dodd being AWOL from his housing and mortgage legislative duties on Capitol Hill -- while he runs for President at the back of the pack -- are financially getting his attention.

After months of delay, the chairman of the Senate banking committee last week unveiled his major reform plans for the home mortgage industry -- and they've got some real teeth.

Among other provisions, Dodd's bill would ban all prepayment penalties imposed by lenders in connection with subprime and nontraditional loans, require escrows for taxes and insurance for all subprime borrowers, and prohibit loan officers from steering home buyers to higher-rate, higher-fee mortgages than they deserve or can afford.

Violators would get hit with mandatory cancellations of the loan -- full paybacks of downpayments, principal, interest and closing costs fees -- and $5,000 cash penalties on top of that.

Inflated appraisals would also be targeted: Borrowers could sue their bank or loan broker any time the appraisal on a house came in 10 percent or more below the actual market value, as established by independent valuations.

And all those "liar loans" -- you know, the ones requiring no asset verification, no income verification, no verification of employment that were so popular at the height of the housing boom -- well, you can probably kiss them good bye if Dodd's legislation is enacted.

The bill would impose much stricter requirements for documentation … and would give the Federal Reserve Board the authority to write regulations enforcing the tougher standards.

Dodd is expected to push his reform bill for Senate floor action as quickly as possible, and then go to conference with the House, which has already passed a comprehensive mortgage market reform bill with roughly similar objectives.

With the chairman back in the legislative saddle, there's also a better chance for Senate floor action on the bill the housing market has been waiting for months to see: Reform of the Federal Housing Administration's loan programs -- higher mortgage limits, lower downpayments and risk based pricing to pull in a wider span of home buyers and refinancers.

We'll keep you posted.

Published: December 17, 2007

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.