A suitablility test for borrowers

Are you suitable for that mortgage? That is the line of thinking in government circles these days as they grapple with the sub-prime mortgage meltdown. The closest analogy is how in the securities industry financial advisers put a potential investor through a suitability test or evaluation. In other words they can only sell high risk investments to sophisticated investors. Would a similar provision be the right remedy for the mortgage industry? The article below tackles this question and does a very good job (it’s part 1 of 6, so there is more to come.)

What do I think? I haven’t made up my mind yet. I will and when I do I’ll be sure to share it with you.

Should lenders be liable for mismatched home loans? “The case for suitability looks both simple and plausible, and it seems to be making headway in Washington, D.C. A federal suitability rule has worked in the securities industry, or so goes the argument, so why wouldn’t it work with home mortgages? “

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