Fed Issues Guidelines To Prevent Subprime Implosion Redux

New guidelines from the Federal Reserve will require federally regulated lenders to closely evaluate borrowers’ ability to repay their mortgages. The guidelines will require the following measures to keep fiscally unsound borrowers from shouldering more debt than they can afford:

    Income Verification: Creditors will be discouraged from making loans that cannot realistically be repaid.
    Clear Disclosures: Mortgage terms must be clearly disclosed so borrowers know precisely if and when rate increases lie ahead.
    Refinance Opportunities: Prior to any rate increase, consumers will have 60 days to refinance the loan.

Trade groups find fault with the regulations because they will prevent risky borrows from receiving credit:

Still, trade groups representing mortgage lenders said the guidelines come with a downside: They will reduce the availability of credit for borrowers. The groups urged Congress not to pass legislation that would put similar standards into law.

The proposed guidelines would only affect federally regulated lenders, many of whom have already changed their practices. We urge Congress to ignore the trade groups and enact laws that would apply to the independent, non-bank institutions that are truly responsible for the subprime mortgage meltdown.

Tougher standards urged in borrowing [AZ Central]
(Photo: irina slutsky)

Comments

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  1. tedyc03 says:

    Personally I think credit SHOULD be harder for consumers to get. If credit was harder to get we all wouldn’t have so much debt.

  2. eli_b says:

    Check the picture…even cats qualify for loans previously…

  3. Crazytree says:

    @tedyc03: yes but how will all the loan brokers make any commissions??!?

  4. Why does FedEx need to issue subprime mortgage guidelines? Did the banks use Kinko’s to make their copies?

  5. Trai_Dep says:

    Well, Siamese cats are very good credit risks. It’s the Persian ones that give the whole species a bad name.

    It’s a crazy world when you need the government to tell businesses to follow common-sense guidelines.

    This sort of thing is exactly why business needs to be regulated: protect businesses from their own stupidity… Idiots and their short-term focus.

  6. j-o-h-n says:

    @trai_dep: “It’s a crazy world when you need the government to tell businesses to follow common-sense guidelines.”

    All we really need is for the government to tell them we’re not going to bail out your sorry asses again (and mean it).

    As long as they believe that they’ve got Uncle Sam to take them fall for them why should they be prudent?

  7. Roadgeek says:

    Why not keep the government out of the lending business and let the lenders ande borrowers be responsible for their mistakes? Why should the government be required to absolve my mistake or that of a lender? Whatever happened to persoanl responsibilty?

  8. Roadgeek,

    Because that’s how things got flarged up in the first place?

    Personal responsibility is a nice phrase, but it only works with at least a somewhat level playing field in place. What we’ve got now is more like a system for throwing perfectly reasonable, hard-working, honest Americans to the lions in order to make some tricky banksters a profit. That’s the sort of situation the government is SUPPOSED to step in and regulate.

  9. preparat says:

    This is laughable, the institution directly responsible for the real-estate bubble suddenly jumps in to “tighten standards”. I say responsible in as much as Fed policy through FOMC operations and rate targeting kept interest rates at historical lows causing the credit expansion which resulted in a real-estate bubble. Take irresponsible Fed policy, mix with some ignorance and throw in a decent helping of greed, and you get the current subprime mortgage situation. All that money/credit created had to go somewhere. And it did.

  10. whydidnt says:

    Mary Marsala,
    You’re implying that someone is “forcing” those honest hard working Americans to over extend themselves. The real truth is those people are just making bad decisions on their own.

    The Government’s job IS NOT to regulate every facet of our lives and protect us from ourselves. That line of thinking is how we get into these sorts of messes. People think that the government should always step in and clean up their mistakes. I see nowhere in the constitution that says the government is supposed to protect us from ourselves.

  11. spanky says:

    @whydidnt:

    You should probably be a little more specific in your objection. Barring a few loonies on the outer fringes of libertarianism, everyone accepts some degree of government intervention to maintain social order.

    Characterizing anything over your personal line as ‘regulat[ing] every facet of our lives’ is hyperbolic and just plain silly. Apart from your emotional reaction, what are your criteria for determining what merits government regulation and what doesn’t?

    Regardless of how punitive you’d like to be about what you perceive as a lack of ‘personal responsibility,’ it’s not just the in-over-their-heads borrowers who are in trouble right now. We all live in the same economy. When my neighbor’s house is foreclosed, it affects me. When a lot of my neigbors’ houses are foreclosed on, it affects me pretty dramatically. Should we just sit back and let our economy tank, in the vain hope that people will learn some kind of lesson or something?

  12. mac-phisto says:

    i think we all need to read between the lines when it comes to this stuff.

    -income verification is going to stop a large percentage of small business owners from obtaining mortgages (which in turn could cause a significant drop in small business investment as business loans are often collateralized with property).

    -whereas prepayment penalties were relatively rare on mortgages previously, i’m sure they will become much more common, along with an increase in other fees.

    -say goodbye to prime minus lending…that ship was being buoyed by high returns from subprime borrowers. even ppl with exemplar credit can expect to pay more now.

    i work in commercial lending & if there’s one thing i’ve learned, it’s that gov’t regulation doesn’t do anything to stop abusive practices. it just increases time & expenses & gives companies a justifiable method of increasing product costs.