From the Associated Press:
Congress eyes tougher standards for subprime market
Congress is eyeing tougher standards for risky, higher-interest home loans made to people with blemished credit records as defaults surge and lenders to the so-called subprime market see their own financing dry up.
Some analysts and executives said lawmakers and regulators missed earlier opportunities to scrutinize the mortgage industry, and they worry that a belated overreaction could make matters worse by choking off funds to the poor and further weakening the housing market.
Lawmakers “did nothing while the industry created this problem,” said Christopher Whalen, a New York-based managing director for Institutional Risk Analytics, which analyzes the risk level of companies.
“Now,” he added, “the Congress is going to come out and start wringing their hands and looking for scapegoats.”
Whalen and others said the government has looked the other way for years as risky loans were made to consumers with shaky financial histories and interest rates were kept at historic lows, fueling speculative real estate investments.
“It’s a big issue because the chickens are coming home to roost and the very loose credit policies that we’ve had are now resulting in a great increase in foreclosures,” said Rep. Paul Gilmor, R-Ohio, adding that it is too soon to say whether new laws or tighter regulations are the best approach to the problem.
…
Rep. Carolyn Maloney, D-N.Y., who chairs the House Subcommittee on Financial Institutions and Consumer Credit, plans to introduce a bill that would impose more restrictive mortgage guidelines, including a requirement that lenders consider the ability of a borrower to pay back an adjustable-rate loan over the entire term, not just at the beginning, when “teaser” rates are extremely low.Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said in a statement Tuesday that he is “considering a number of options, including legislation” to protect consumers from abusive lending practices and help consumers who have been harmed to maintain their homes.
Rep. Spencer Bachus, R-Ala., who drafted an anti-predatory lending bill last year based on North Carolina and New Jersey laws, called reforms to mortgage practices a “nonpartisan” issue.
He noted that lawmakers were close to completing a bill last fall before negotiations broke down in a dispute about whether fraud victims should be allowed to file class-action lawsuits.
Just who created the problem?
You can’t point to any one sector or entity as being solely at fault. This is really the failure of a system. Situations like this occur because so many people are at complicit in this mass scam that no one feels the heat of individually responsible. While everyone knows its wrong, there is always someone else to point the finger at.
Lets see:
The Fed – lowered rates too far. When they saw a housing bubble emerge, they ignored it; targeting asset prices isn’t their problem, they argued.
Home Buyers – Blinded by greed or paralyzed by the fear of getting left behind, they lied on loan applications or simply took on more debt than they could afford. After all, prices always go up, so you could either sell or refinance.
Brokers – With no skin in the game, they just wanted their commission. They knowing put buyers in loans they couldn’t afford.
Banks – Looked the other as brokers originated shady loans. After all, Wall Street has an insatiable appetite for this crap.
Wall Street – Either took rating agency ratings at face value, or they knew these loans were crap, but is didn’t matter. As long as housing prices keep going up, everything will be okay.
Lawmakers – The writing was on the wall that this would end badly. They could have stopped this earlier, but the housing boom was very popular. People felt rich. It fueled consumer spending. It helped pull the economy out of a recession. It boosted home ownership rates. It would have been politically unpopular to curb risky lending any earlier.
This is Enron all over again. Everyone “in the know”, knows it’s a sham, but they look other way as long as everyone is getting a piece of the profits.
Just who created the problem?
Alan “Bubble Man” Greenspan had a big part in creating this one.