New Federal Standards For Mortgage Industry Largely Irrelevant

Obama Plans Fast Action to Tighten Financial Rules

WASHINGTON — The Obama administration plans to move quickly to tighten the nation’s financial regulatory system.

Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.

Broad new outlines of the administration’s agenda have begun to emerge in recent interviews with officials, in confirmation proceedings of senior appointees and in a recent report by an international committee led by Paul A. Volcker, a senior member of President Obama’s economic team.

Timothy F. Geithner, the nominee for Treasury secretary, made similar comments in written and oral testimony before the Senate Finance Committee.

Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.

More Effective Regulation Was Necessary Years Ago

Anyone familiar with the type of mortgage lending that occurred during the housing boom and lending mania should applaud the actions of the Obama administration.   Mortgage loans werer granted to all takers, no questions asked.  Every party involved in the lending lunacy bears responsibility –  this includes the Fed, Congress, Wall Street, major banks, sub prime lenders, and the multitude of mortgage brokers who fed the food chain above them.

The unanswered question is why weren’t these regulations passed and enforced 5 years ago?  Apparently, Alan Greenspan’s encouragement to borrow by keeping credit easy and rates low lulled all of us into complacency.

Too Little, Too Late

Enacting legislation now to control the excesses of the mortgage industry is largely for public relations consumption.

Stricter regulations won’t help much now –  the disaster has already occurred.  The sub prime lenders are out of business, most of the major banks are insolvent, the Wall Street firms are largely bankrupt, borrowers no longer qualify, buyers are too afraid to buy a home and most of the mortgage brokers are out of business.  Who is left to be regulated??

The mortgage industry has effectively been nationalized.  The only lenders that remain are government owned or sponsored – Fannie Mae, Freddie Mac and the FHA.  It’s great to have these new financial regulations but it is largely irrelevant at this point.

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