SubprimeMortgages

After months of delay, on Friday the House of Representatives passed its "Wall Street Reform and Consumer Protection Act," 223-202. That fairly tight vote should tell you something: this reform is a 1279-page tissue of compromise. Let's leave the first part to others to dissect, for now, and focus on what "consumer protection" actually means here.

The big news is that the bill establishes the Consumer Financial Protection Agency, which will have the power to regulate not just mortgages but most kinds of "financial products" you or I might be tempted to buy, from credit cards to electronic funds transfers (with one huge exception: car loans from a dealer).

But the reason we've got this bill is mortgages, mortgages, mortgages, and the many features of the products and their sales practices that set borrowers up to fail. One example the Obama administration gave when it first proposed the agency early this year is the "yield spread premium," -- a bonus that mortgage brokers get from a lender when they sell a customer a loan with an interest rate higher than the one he or she qualifies for.

I'm actually not sure the bill as passed would give the agency a slam-dunk case against yield spread premiums or other harmful product features. The agency can't crack down unless the product or practice is likely to cause "substantial injury" that consumers couldn't reasonably avoid, and that injury is not outweighed by benefits "to consumers or to competition."

When Fannie Mae, Freddie Mac and the Wall Street mortgage-backed securities machine all went the way of King Kong and Godzilla last year, that left just one home finance giant standing: the Government National Mortgage Association, or Ginnie Mae. Ginnie Mae bundles together mortgages into securities, and backs their sale to investors.

Ginnie Mae survived by sheer luck. It only guarantees mortgages insured by the Federal Housing Administration, and during the subprime craze FHA became irrelevant, backing barely 3 percent of all mortgages. But with subprime's demise, FHA lending has surged, insuring more than one-third of all new home loans. And suddenly Ginnie, an understaffed bureaucracy, has become an essential source of financing for home loans.

A new investigation from The Center for Public Integrity and Washington Post reveals the sorry result: Ginnie has funneled an estimated $100 billion to dozens of mortgage lenders with records of reckless and sometimes illegal business practices.