Forget Congress. Real Reform Lies With The Federal Reserve

Give the Federal Reserve some credit. Not only is it (for now) propping up a broken mortgage finance system with a trillion-dollar-plus commitment to buy mortgage-backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae, the Fed is also combing through its regulations to fix glaring vulnerabilities, so the current crisis doesn't repeat itself.

While campaign contributions from the financial industry are shredding financial reform legislation in Congress, the real action is taking place at the Fed.

But not if the National Association of Mortgage Brokers can help it. Just before Christmas, the group rallied thousands of its members to protest new rules the Fed is currently considering that would effectively destroy brokers' compensation lifeline -- the yield spread premium.

Yield spread premiums are payments that brokers receive when they sell a borrower a higher-interest loan than he or she actually qualifies for. Brokers defend yield spread premiums as a way for consumers to pay off their closing costs over time. In proposing its restrictions, the Fed came to a very different conclusion: YSPs pose "significant risk of economic injury to consumers," because they give brokers a powerful incentive to put borrowers into loans that are too expensive and risky.

Or as official TARP watchdog Elizabeth Warren puts it, a YSP is "a bribe to steer you to the loan that is more expensive for you and more profitable for the lender."