Randolph Kinney
Elite Member
- Joined
- Apr 7, 2005
- Professional Status
- Retired Appraiser
- State
- North Carolina
Fed, Comptroller Publicly Chastised Few Banks Before Mortgage Bubble Burst
http://www.bloomberg.com/apps/news?pid=20601103&sid=aaaaiJy5auiY&refer=us
The witch hunt and finger pointing has started. Who is to blame for the subprime mortgage implotion? Who shall we blame for the bad economic affects?
http://www.bloomberg.com/apps/news?pid=20601103&sid=aaaaiJy5auiY&refer=us
The witch hunt and finger pointing has started. Who is to blame for the subprime mortgage implotion? Who shall we blame for the bad economic affects?
March 14 (Bloomberg) -- The Federal Reserve and the Office of the Comptroller of the Currency took little action in public to police the $2.8-trillion boom in the U.S. mortgage market -- whose bust now risks worsening the housing recession.
Consumer advocates and former government officials say the regulators, by acting behind the scenes rather than openly advertising the shortcomings of some firms, failed to discipline an industry that loaned too much money to borrowers who couldn't repay it.
Now, more lenders are being forced to shut and foreclosures are rising, threatening to scuttle any chance of an early recovery in housing.
Because borrowers are having difficulty paying in a time of economic expansion and low unemployment, Congress and consumer advocates want to know how regulators allowed lenders to write loans borrowers would never be able to repay.
After being rebuked for foot-dragging by Senator Christopher Dodd, a Connecticut Democrat who chairs the Senate Banking Committee, federal regulators issued proposed guidelines aimed at subprime lending on March 2.
The subprime industry's woes have their roots in the tenure of former Fed Chairman Alan Greenspan. The Greenspan-led Fed cut its benchmark rate to 1 percent in 2003 and kept it there for a year, helping foster a housing bubble.
As Wall Street's appetite for high-yielding mortgage bonds drove demand for high-risk loans, lending standards declined. Subprime mortgages almost doubled to $640 billion in 2006 from $332 billion in 2003, according to the newsletter Inside B&C Lending.
Consumer advocates say the Fed has expansive authority and could have stopped abuses. The Truth in Lending Act gives the Fed rule-writing authority over disclosures for consumer credit among all financial institutions. The Home Ownership and Equity Protection Act of 1994 also gave the Fed a role in preventing predatory lending, according to consumer advocates.
In addition, federally regulated banks and Wall Street firms are often the financiers standing behind state-regulated mortgage lenders. New Century Financial Corp., the nation's second-biggest subprime lender, includes Morgan Stanley, Citigroup Inc., and Goldman Sachs Group Inc. -- all regulated by federal agencies -- among its creditors. Gramlich says the Fed should seek an expansion of its authority to supervise mortgage subsidiaries of bank holding companies.
"There is no question that mortgage brokers are on the street committing systematic fraud on the American homeowner,'' said Irv Ackelsberg, a Philadelphia attorney who testified at a Fed hearing last year in the city. He said there is a "lack of will'' on the part of the Fed to use its power to stop abuses.