The reforms being proposed will make common sense changes to the process of mortgage lending. Here are a couple of lending practices this measure addresses:

Yield Spread Premiums:
Banks offer kickbacks to mortgage brokers if they “steer” people in to a subprime loan, even though the borrower’s credit rating qualifies them for a much better rate — we think those kickbacks should be illegal.

Stated Income Loans:
In 2006, half of all California loans were based on the borrower’s “stated” income, with no verification by the lender, a process so transparently false in so many cases that lenders had a term for it: liars’ loans. This lead to a huge amount of loans borrowers couldn’t afford.

Prepayment Penalties:
Believe it or not, some lenders wanted the system so rigged in their favor that they created “prepayment penalties” the practice of charging the borrower fees for paying off their loan early.  In 2006, 80 percent of all California loans had prepayment penalties — we think there should be no penalty for paying off a loan early.

Securitization:
Adding fuel to the fire, many mortgage loans today are sold by the lender to stockbrokers on Wall Street.  The problem is that the stockbrokers have almost no accountability and therefore no incentive to ensure the loans they are selling were made in good faith.