Mortgages Key Part of Obama Reform

Real innovations?
At the height of the mortgage boom, 2005 to early 2007, lenders got carried away with what they called innovation. But their innovations were in marketing, not product development. Lenders didn't develop anything new: Stated-income and negative-amortization mortgages had existed for years, mostly for sophisticated borrowers. The innovation lay in marketing these riskier loans to borrowers who, in earlier years, would have been given plain-vanilla loans -- or no loans at all.
These innovations in marketing brought big profits for a while, before they led to Titanic losses. Despite the mortgage bust, the industry holds innovations dear. "We want to ensure that the new structure does not stifle innovation or increase costs for consumers," says John Courson, president of the Mortgage Bankers Association.

President Barack Obama, in announcing the proposed regulatory changes, spoke of innovation, too. He promised that lenders will be able to "offer innovative products that consumers actually want and actually understand."

Proving that "innovation" has multiple definitions, even a consumer advocate endorsed it. "We need a watchdog to restore consumer confidence and increase the availability of innovative financial products to promote wealth building and access to capital for all communities," said Linda Sherry of Consumer Action.

On the other hand, you had Lauren K. Sanders, managing attorney for the National Consumer Law Center, who said: "We need to get back to old-fashioned values like safe, affordable products that the good old Main Street banker used to offer. Consumers should not have to fear that the fine print of their mortgage or credit card is loaded with hidden tricks and traps that will explode on them."

It will be a rocky road to plain-vanilla mortgages.