Feds Don’t Go Far Enough to Regulate Subprime Lenders

01 Jul Feds Don’t Go Far Enough to Regulate Subprime Lenders

In news Friday out of Washington, D.C., the Federal Reserve and the other four federal agencies that regulate banks, thrifts and credit unions announced tough, new guidelines requiring lenders to plainly disclose loan terms and to strictly evaluate borrowers’ ability to repay home loans. O.K. . . . Not exactly.

In reality, the guidelines aren’t that tough and they’re not mandatory. Oh, and they only apply to federally regulated lenders. Well, maybe Congress will step in and pass laws protecting consumers and requiring their largest contributors to adhere to more prudent lending practices to protect the economy and housing market from collapse. . . . Stop laughing. . . . It could happen. . . . Oh, I see. You’re skeptical because of the way Congress passed sweeping changes to the bankruptcy law for the benefit of credit card companies . . . er, major campaign contributors . . . to the detriment of middle class Americans. Well, is this a different Congress that regrets its passage of BAPCA as much as it regrets the war in Iraq?  We shall see.

In any event, the new “suggestions” from the bank regulators are that (1) lenders should verify borrowers’ incomes in most cases and (2) lenders should clearly disclose the terms of the mortgage and (3) borrowers should have at least 60 days to refinance without penalty before the adjustable rate “resets”. Really? Lenders should verify incomes and disclose loan terms? I know what you’re thinking. “That seems pretty obvious.” One would think these suggestions wouldn’t be necessary, but the mortgage industry has been handing out high risk loans with no income verification and selling consumers products they don’t understand.

The third suggestion that borrowers should have at least 60 days to refinance without penalty before the adjustable rate “resets” should be law. Predatory lenders have been penalizing borrowers for refinancing their loans before their ARM resets. This is a pure scam and should be outlawed.

According to a report on MSNBC, Sheila Bair, the FDIC’s chairman, said in a statement that the guidelines won’t affect non-bank lenders, who have been the main originators of subprime loans. She is urging Congress or the Federal Reserve to establish comparable principles for all lenders. In other words, the Chairman of the FDIC is urging Congress to pass some laws so that non-bank lenders won’t be able to offer products that banks can’t offer.

The reality is that Congress needs to step up and protect the middle class by regulating anyone who writes mortgages because the current mortgage crisis in this country affects more Americans than the Enron debacle.

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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