Attempting to address the ongoing economic downturn, Treasury Secretary Henry Paulson last week outlined reforms aimed at mortgage brokers, credit-ratings agencies and Wall Street. The recommendations come from the President’s Working Group on Financial Markets, headed by Paulson, with participation from Federal Reserve Chairman Ben Bernanke and the heads of the New York Federal Reserve Bank, the Securities and Exchange Commission and other financial policymakers and regulators.

The Working Group announced a six-point plan that they believe will strengthen transparency and disclosure, risk awareness, risk management, capital management, regulatory policies and market infrastructures.

The goal is to “…put us on a path toward more transparent, better-functioning and better-managed markets," stated Paulson.

The six-point plan aims to:
• Reform the mortgage origination process
• Improve investors’ contributions to market discipline
• Reform ratings agencies’ process for and practices regarding structured credit and other securitized credit products
• Strengthen global financial institutions’ risk management practices
• Enhance prudential regulatory policies
• Enhance to the infrastructure for over-the-counter (OTC) derivatives markets

Paulson refrained from laying blame on any particular segment of the economy, but was highly critical of weakened underwriting standards used by mortgage originators. The Working Group’s recommendations outlined the need for national licensing and enforcement standards for mortgage brokers, stricter safeguards against fraud, greater transparency and disclosure to borrowers about home-loan terms, including long-term affordability, and better risk management on the part of financial institutions

The Working Group is hopeful that the recommendations will address the current liquidity and credit concerns bogging down the U.S. economy, as well as prevent such problems from arising in the future. Paulson was careful to state his intension of measured implementation of the panel’s recommendations to avoid exacerbating the economic slowdown. Many of the Working Group’s recommendations are addressed in the Mortgage Reform and Anti-Predatory Lending Act of 2007" (H.R. 3915), which passed the House 291-127.