Fed Regs on Subprime Mortgage Lenders Kick In Today
October 1 is the date that some new Fed rules for home mortgage lending finally go into effect – just fifteen years after Congress gave it the authority to act, five years after the subprime mortgage lending boom went into overdrive, two years after the excesses of that industry led to its self-destruction, twenty-one months after the Fed issued draft rules for comment, and fifteen months after the new rules were issued in final form.
Starting today, lenders making high-priced loans must evaluate a borrower’s ability to repay the loan, must verify a borrower’s stated income, and cannot impose a prepayment penalty if the monthly payment can change during the loan’s first four years. But no one should accuse the Fed of being too hard on the industry’s sleazy practices – for six more months, lenders can make high-priced loans without having to set up escrow accounts to cover their borrowers’ property tax and homeowners insurance payments.
The absurd lateness of these rules underlines the Fed’s failure to protect vulnerable consumers at the time that it mattered. It is still not widely-enough understood the extent to which the Federal Reserve remained passive as the subprime mortgage boom unfolded, even though a 1994 law gave it sweeping powers to regulate unfair and deceptive mortgage lending practices. Most recently, the Fed’s refusal to act in spite of repeated warnings from consumer advocates and even a member of its own Board of Governors has been highlighted in a Washington Post article on Sunday and Congressional testimony yesterday, that we blogged about here and here.
Have we mentioned the need for a Consumer Financial Protection Agency that will actually protect consumers from predatory lenders before the damage is done?