The Associated Press says that a review of regulatory documents shows that years before the subprime mortgage crises developed into a full blown economic meltdown— the government ignored warnings and listened instead to lobbyists who represented some of the same banks that have now failed.
From the AP:
Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.
“These mortgages have been considered more safe and sound for portfolio lenders than many fixed rate mortgages,” David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.
The AP goes on to list several proposals from 2005 that were ignored. Here they are:
Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling.
Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.
Countrywide, then the nation’s largest mortgage lender, called the proposals “excessive” and claimed they would “inhibit future innovation in the marketplace.” Whooooops.