Mortgages Key Part of Obama Reform

If the Obama administration has its way, your next mortgage is likely to be "plain vanilla."

Mortgage lenders will be required to offer "'plain vanilla' products that are simpler and have straightforward pricing," according to a proposal circulated by the White House. A new regulatory agency would "require all providers and intermediaries to offer these products prominently, alongside whatever other lawful products they choose to offer."

To extend the administration's metaphor, next year's mortgage marketplace might resemble an ice cream shop in which the salesperson's first words to you are, "Would you like a single dip of low-fat, plain-vanilla ice cream?" If you want a double dip, or desire a flavor that's more fattening, you have to sign a form opting in to less-healthy ice cream, then read a warning label about the perils of rocky road.

In short, the administration proposes a reform of banking regulations that would nudge consumers into taking fewer risks when they borrow. The new regulations would require financial disclosure documents to be easier to understand. Rules would push mortgage companies into competing on rate and price rather than competing by developing newfangled loan types.

The Obama administration wants to reform a lot more than mortgages. It's asking Congress to make a multitude of changes affecting the entire financial system to prevent another meltdown. The proposal addresses everything from credit cards to hedge funds. It blames much of the financial crisis on the deterioration in lending standards for mortgages, so mortgage regulatory reform takes a prominent place in the 85-page proposal.