Critics Decry Feds' Weak Predatory Lending Plan

The Fed proposed new sub-prime lending rules designed to protect consumers from predatory lending practices, in the future. You know, because the most important thing is to prepare for the next sub-prime meltdown. Critics were quick to lambaste the plans:

House Financial Services Committee chairman Barney Frank (D-MA): “We now have confirmation of two facts we have known for some time: one, the Federal Reserve System is not a strong advocate for consumers, and two, there is no Santa Claus. People who are surprised by the one are presumably surprised by the other.”

Center For Responsible Lending: “riddled with loopholes”

Center for Economic Policy Research: “Why couldn’t Greenspan have done this seven years ago?”

David Wyss, chief economist at Standard & Poor’s: “We always lock the barn door after the horse has gone.” Fed officials are hoping to “restore confidence in this category” of mortgages so lenders “will start making these loans again.”

Senate Banking Committee Chairman Christopher Dodd (D-CT): “a clear signal that legislation is necessary to help protect homeowners from abusive and predatory lending practices.”

(Photo: Getty)

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  1. Tux the Penguin says:

    I still think that people are looking at this from the wrong perspective. Sure, the lenders were part of the problem. But only part of the problem. Eventually someone needs to look at the people who took out these loans and chastise them. They knew that the rates would eventually go up. They just figured they would cross that bridge when it came. They knew that they couldn’t pay their credit cards, but they figured they could pay their mortgage.

    Yes, there are a few people who were genuinely caught. But those are the exception, not the norm.

    All this entire time, we’re essentially bailing out these people. What about those who bypassed these ARMs, etc and went with the responsible 30-year fixed? Where is their bailout?

  2. JustRunTheDamnBallBillick. says:

    Lets see…

    Proof of income is great, but some borrowers HAVE to use stated income to qualify, especially professionals or business owners who own their own businesses

    Borrowers were always qualified based on a full rate, but it was the current going rate usually, not the ARM rate, which had a huge potential range

    The only “Hidden fee” in the interest was yield spread premium, which was the markup brokers got for selling a loan, or lenders own incentives. Brokers always had to disclose this on the TIL and Good Faith Estimate, though it sometimes changed by closing. Lenders having to now disclose is fair, but it implies that fees were routinely “Hidden”. Brokers or lenders have a right to make a profit on every deal, despite what people think, and I know of no other business that details what goes into cost as well as the mortgage business does.

    And lawsuits was just a gift to the corrupt plaintiffs bar. Does anyone think that borrowers will benefit from these suit, except in cases of outright fraud?

  3. Munsoned says:

    @JustRunTheDamnBallBillick.: Couldn’t professionals and small business owners looking for a mortgage just provide audited financials, or even bank statements demonstrating their cash flow? Sure, it’s a hoop, but don’t the rest of us have to jump through hoops too with tax returns, paycheck stubs, etc.?

  4. ancientsociety says:

    “Federal Reserve System is not a strong advocate for consumers…”

    Ummm, no sh*t? Why would they be? They’re owned and operated by the largest banks in the country.

  5. GreatCaesarsGhost says:

    Wait, there’s no Santa Claus? Thanks, Barney. Now my kids are crying. Let’s be a little more careful with the metaphors in the future.

  6. m4ximusprim3 says:

    @GreatCaesarsGhost: Nothing like a friendly democrat dinosaur in a purple suit telling your children there is no santa.
    @JustRunTheDamnBallBillick.: If I have to have my job for several years to qualify for a loan, then those who are self employed should as well. I’m sure there are provisions in the regs to allow these people to use financials or other documentation as ernie states. If you haven’t owned your business long enough to have a demonstrable income, you shouldn’t qualify for a loan.

  7. stuckonsmart says:

    @JustRunTheDamnBall — As an entrepreneur and small business owner for 30 years — documenting my TRUE INCOME — is as simple as copies of my last 3 years tax returns. That’s what legitimate lenders required before I amassed sufficient $$$ to no longer need them.

    Used to be, when you played clean and BY THE RULES — you eventually did well.

    Nowadays, play by the rules and you get screwed — while the scoundrels, at every level, get their noses and assess whipped clean by the “guvment”. As the Russian comedian years ago used to say: “America — what a country!.”

  8. Bos'un's Mate says:

    Does that photo mean Global Warming is to blame?

  9. meadandale says:

    I’m sure there WERE some predatory lenders and realtors who outright lied to their clients.

    On the other hand, many others were just blowing smoke up people’s skirts: “Your house will always increase in value” “You can always refinance”. Buyers who believed this nonsense without doing their own due diligence are the guilty ones. At the end of the day, the borrowers are the ones sitting down at the table with the pen in their hand signing the ACTUAL loan documents with the terms spelled out in black and white.

  10. econobiker says:

    @Tux the Penguin: Your statement fails to account for the people who only hear how much the monthly payment is. You know them- that same group that thinks an 84 month auto loan is a good deal because the payment is so low…

    I am fairly sure that the lenders didn’t give them a rate sheet that said “when the rate goes up in three years you will be paying this much per month”

  11. sled_dog says:

    @Tux the Penguin: What about those who bypassed these ARMs, etc and went with the responsible 30-year fixed? Where is their bailout?

    Amen to that. Those who invested in these loan “vehicles” are the ones who should take the hit, along with the customers who were too stupid to fall for a too-good-to-be-true mortgage scheme.

    Its not like the properties themselves have lost that much value; after all, once a property is forclosed it is sold again for its current value. Like any other investments, there will be up trends and down trends. Property values have been on an upward trend so long that a correction was enevitable.

    Taking on an ARM loan is essentially playing the market, betting that the mortgage rate will not go up, or that you will be able to refinance before things get out of hand.

    I do take pity on those who got suckered into the sub-prime market. I don’t see why we responsible (fixed rate mortgage) consumers should have to pay for people who simply made a bad bet.

  12. B says:

    Wait, there’s no Santa Claus?

  13. artki says:

    A few years ago all the complaints were about “red-lining” where scads of people weren’t allowed to get home loans. The industry responded. People got loans. Now it’s the lenders fault – they’re predators!

  14. tjanusz says:

    I am a former senior loan officer for a regional mortgage bank. It made me sick to see how we took advantage of consumers for thousands of extra dollars. Sometimes these were smart people who simply didn’t know any better. So I developed this simple Mortgage Loan Comparison Worksheet. If borrowers just used this easy tool when shopping for a mortgage, predatory lending in this country could virtually be eradicated:

    [www.januspresentations.com]

    Problem is, most borrowers only make a decision once every seven years, so how would they even know what to look for? As a loan officer, my mission was not to educate, but to get a signature on the bottom line, at any cost.

    As my “penance” I wrote a book entitled “Kickback: Confessions of a Mortgage Salesman,” now one of the best-selling books on mortages on Amazon.com. In the book, I list the Top 10 Mistakes Mortgage Borrowers Make :

    1. Not knowing which mortgage fees the borrower can — and cannot — negotiate.

    2. Choosing and trusting the first loan officer the borrower interviews.

    3. Using an interest-only or “payment option” adjustable-rate loan primarily to qualify for a more expensive house than you could normally afford.

    4. Thinking the interest rate is always the main thing.

    5. Not comparing the final fees listed on the closing documents to the up-front estimates to avoid the lender “packing the loan” with added-on fees without the borrower’s knowledge.

    6. Not knowing if the mortgage has a pre-payment penalty – until it’s too late.

    7. Thinking that renting is always just throwing money away.

    8. The borrower does not know if he or she is paying a back-end yield spread or Service Release Premium.

    9. Paying for mortgage life insurance, credit insurance or other expensive lender add-ons to increase the amount of kickbacks the lender can receive from various vendors.

    10. Paying hundreds of dollars to have a company set up a biweekly mortgage payment plan, something the borrower can generally do for herself or himself — for free.