For the American mortgage market, it could be the hottest buzzword of the year: suitability. That’s because Congress has a new top legislator for mortgage matters, Rep. [tag]Barney Frank[/tag], who believes that “you shouldn’t lend (home buyers or [tag]refinancers[/tag]) more than they can afford to pay back, and you don’t lend them more than their house is worth.” Frank, a 14-term Massachusetts Democrat, is the new chairman of the [tag]House Financial Services Committee[/tag] — the primary originator of banking and mortgage-related federal legislation. In an interview, he made it clear that a top priority this year will be enactment of a [tag]nationwide lending-standards law[/tag] designed to protect consumers from deceptive, unfair and predatory mortgage practices.

With foreclosures rising and many credit-stressed homeowners facing imminent rate resets on controversial “payment-option” and other adjustable-rate loans, pressure is building on Capitol Hill for tougher rules for [tag]mortgage brokers[/tag] and lenders. A recent study by the Center for Responsible Lending predicted that as many as 1 of every 5 subprime borrowers who took out reduced-payment, low-documentation mortgages between 1998 and mid-2006 could ultimately lose their homes because of steep payment increases and penalties they can’t handle. Proponents of a suitability standard would require loan officers — whether mortgage brokers or retail lenders — to make certain that applicants are financially capable of handling a particular loan before and after payment increases, and that they fully understand the cons as well as the pros of the mortgage type they select.

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