Fed To Curb Shady Lending Practices
Jul 13th, 2008 @ 4:40 PM by Alden Smith
It is no secret that the Fed is working to curb shady housing practices. It has been talked about for a long time, yet we have seen nothing substantial materialize yet. Now that the housing market is deeply depressed, it seems Washington is finally willing to lend an ear.
From The Associated Press, here are the guidelines they expect to put in place:
* restrict lenders from penalizing risky borrowers who pay loans off early.
* require lenders to ensure those borrowers set aside money to pay for taxes and insurance.
* bar lenders from making loans without proof of a borrower’s income.
* prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the homes value.
* curtail misleading ads for many types of mortgages.
* bolster financial disclosures to borrowers.
I guess I see the world through rose colored glasses – I would like to be able to think that these would be standard practices regardless of how things are right now in the economy.
Of course, advocacy groups think it isn’t enough, and lenders feel these guidelines too tough. The plan is expected to gel in the light of the troubles with Freddie and Fannie.
Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business, echoed my sentiments exactly. She said that “Clearly this is closing the barn door after the fact. This is a very important move. It absolutely will make a difference going forward.”
Guidelines for moving forward might be a bit difficult to gauge. With credit tightened up and people hunkering down and riding out this mess, there will be no benchmarks in place to see if it is working. The Mortgage Bankers Association wants the Fed to tread lightly. From Greenspan to Bernanke, the Chiefs have taken heat for being lax in seeing that proper practice was not in place. If it had, I think we would not see this situation we are in now. Rep. Maxine Waters hit the nail on the head when she told Congress “How disappointed I am with all of us members of Congress, for what appears to have been weak oversight of our regulatory agencies, and our regulatory agencies for what appears to have been weak oversight of our financial institutions.”
With the evening news telling us that around 90 banks are doomed to fail, and that not including IndyMac, then it appears the ill will and misdeeds have come home to roost. I am reminded of what my Granny once said to me – “Greed and avarice leads to the downfall of any man.”