Holden Lewis has an update on lending reforms. "Imagine that mortgages were automobiles, and you had the power to witness every sale. Every day, you would watch, dumbfounded, as pizza deliverers passed up Priuses and bought Hummers instead. You would cringe as 16-year-olds screeched off the lot in souped-up cars, destined to die young."

"If mortgages were cars, you would see people making these mistakes all the time. Too often, consumers get home loans that are inappropriate or too risky. Regulators are wrestling with the question of what to do about it. Whose job is it to decide that a particular loan is unsuitable for a specific customer?"

"'Who am I to tell you that you're eligible for this kind of loan, but you're not suitable for it?' banker Robert Broeksmit asked at a recent Federal Trade Commission workshop. A consumer advocate retorted in an interview, 'It can be boiled down to this: Don't offer things that people can't pay and really are rip-offs.'"

"The argument is about what federal regulators call 'nontraditional' mortgages, home loans in which the borrower is required to pay only interest, and not principal, for the first few years."

"Regulators have proposed a 'guidance' asking lenders to step cautiously when underwriting nontraditional loans. The proposed guidance says lenders should avoid loans 'that may result in the borrower having to rely on the sale or refinancing of the property,' once the borrower has to start paying principal as well as interest."

"In other words, don't give a mortgage to someone who can't afford to pay principal and interest, even if it's an interest-only loan."

"Consumer advocates said lenders should subject applicants for nontraditional mortgages to a suitability test, 'some duty to the borrower to make sure they're not put in a loan that's not appropriate,' says Stella Adams, executive director of the North Carolina Fair Housing Center. 'I tell you, three-page disclosures with 'wherefores' and 'therefores' don't cut it.'"

"A suitability standard 'would put some obligation on some part of mortgage lenders and mortgage brokers to not squeeze people into loans where they have no reasonable prospect of being able to repay them,' says Allen Fishbein, of the Consumer Federation of America."

"Bankers countered that the lending industry has built-in suitability standards. Riskier borrowers pay higher interest rates and sometimes must buy mortgage insurance. Mortgages are bundled together and sold on the secondary market to investors, who have powerful analytical tools to gauge just how risky a particular pool of loans is."

"'If loans are being underwritten that will inevitably fail, there will be no buyers for those loans on the secondary market,' says Robert McKew, general counsel for the American Financial Services Association. 'The secondary market acts as a regulator in addition to government regulation.'"

"But consumer advocates argue that the secondary market allows the mortgage industry to view foreclosures as just another cost of doing business. One foreclosure in a package of hundreds of loans is a blip on an investor's computer screen, but it's long-lasting trauma to the family that loses a house."

"Michael Williams, VP for legislative affairs for The Bond Market Association, agrees that 'you have to put the burden on the consumer to be educated.'"

"On the other hand, he says, people don't want to be educated. They just want the loan."