From the Philly Inquirer:
The Federal Reserve’s proposals last week to address deception and fraud in mortgage lending will all be for naught unless the states, the Fed, and other federal agencies tighten their enforcement of the lending rules.
Lending standards weakened sharply in 2005 and 2006 as home prices soared. Fraud and predatory lending were rampant in the subprime market, which served borrowers with the weakest credit histories.
Yet there wasn’t any federal sheriff. No one made sure that borrowers received complete and clear information from lenders so they would know what they were getting into – and that lenders checked to be sure borrowers would be able to handle the monthly payments. During the housing boom of the early 2000s, lenders were so anxious to write mortgages that information provided was sometimes misleading or fraudulent, and borrowers’ financial backgrounds weren’t verified.
At least eight federal agencies, including the Federal Reserve and even the FBI, have had some oversight responsibility for mortgage lending. Also, mortgage brokers and non-bank lenders are regulated at the state level.
“This does not change the current enforcement scheme,” a senior Fed official acknowledged when explaining the rules proposed by the Fed last week. He was one of a team of officials who briefed reporters on the condition that they not be identified by name.
But the status-quo enforcement is a problem, given the weak track record on self-regulation by industry and widely varied government enforcement.
“I think, with the subprime blowup, we’ve seen that markets aren’t good at governing themselves,” said Kurt Eggert, a law professor at Chapman University in Orange, Calif.
Eggert, who is finishing a three-year term on the Fed’s consumer advisory committee, credited Fed Chairman Ben S. Bernanke with recognizing the need for tighter enforcement rules. His predecessor, Alan Greenspan, did not.