Fed To Change Mortgage Rules

In as clear a case as you will find of closing the barn door after the horses get out, Fed chief Bernanke now proposes prohibiting lenders from giving mortgages without proof of income, among other mortgage reforms.

As the lenders threw money out the window the early part of this decade, they had to lower their standards to keep the gravy train going. So, most of the mortgages in 2006 and 2007 were “no doc” loans, in which tens of millions of dollars were lent to people without proof that they had any income with which to repay the loans.

Now the Fed is acting to protect the lenders from themselves, imposing underwriting standards where none have existed.

Protecting the homeowner would seem to be a better course of action than bailing out the sub-prime mortgage lenders. Rather than subsidizing the money people who bet wrong, and letting foreclosures increase, further depressing home prices, as we bloggers have said before, let Congress make a simple reform to Chapter 13 bankruptcy law, and the credit crisis can be at least partly addressed without cost to the taxpayer.

But no, the big boys, having been led by greed, instant gratification, short term gain, now want the taxpayer to let them off the hook.

And the Fed is shoveling money out the door to keep them afloat, and only now getting around to regulations that would have avoided much of the sub-prime crisis.

Related posts:

1. The Next Mortgage Crisis
2. Former Congressman Kemp Supports Bankruptcy Law Change
3. Banks Prefer To Ignore Inconvenient Rules