Reforming the Regulation of the Market for Home Loans
33 Pages Posted: 2 Mar 2011 Last revised: 10 Mar 2011
Date Written: March 1, 2011
This article explores the content and institutional context for recently revised regulation of the markets for residential mortgages. It proposes a market-sensitive reading of the Wall Street Reform and Consumer Protection Act, and suggests that the Bureau of Consumer Financial Protection created under the Act should be understood to balance consumer protection with concerns for the liquidity and safety and soundness of the financial markets. In particular, it argues that the Act has the potential to create a regulatory architecture that protects both consumers and the capital markets by distinguishing between financial products that can safely be financed through the capital markets and those that pose greater risks, and should, by design, be more illiquid. This coordinated architecture can be implemented, we believe, by the new Bureau of Consumer Financial Protection through its related powers to prohibit unfair lending practices, promulgate safe harbor notices and implement certain minimum mortgage origination standards. However, the devil will be in the details - both substantive and institutional - and, in our view the new Bureau will have to flex its rulemaking muscle a bit to fully implement that vision.
Suggested Citation: Suggested Citation