Mortgage brokers, beware: HUD secretary warns of new accountability

Mortgage brokers should expect to see changes in how they are paid and will be held accountable for loans they sell, Secretary for Housing and Urban Development Shaun Donovan said during a keynote speech at the National Association of Real Estate Editors conference in Washington.

Donovan on Thursday said the housing market is showing some signs of stabilization and the Obama administration remains focused on the economy’s recovery. But Donovan said steps are needed "to ensure the kind of behavior that got us into this situation never happens again."

One proposal would require that mortgage brokers get paid based on the loan performance over time, rather than a lump sum at closing.

"The days of lenders and brokers shopping for the most lenient regulators will be over," he added.

The new plan will be designed to "reward responsibility, not recklessness," he said. "It’s real accountability."

Donovan said he met with President Obama on Wednesday to discuss a regulatory plan and new rules. Obama has proposed a new federal regulatory agency, the Consumer Financial Agency, which would have the authority to rewrite the rules governing mortgages and homeowners.

The new rules would require that borrowers receive detailed disclosures on the risks of the mortgages; require lenders to offer "plain vanilla products" that are easy to understand.

The plan being discussed also would restrict or ban prepayment penalties on mortgage loans and would require loan originators and sponsors of securitizations to retain 5 percent of the credit risk.