July 14, 2008


“Today’s Federal Reserve Board regulations should help to put an end to certain abusive lending practices.  Too many homeowners have been put into loans that are unaffordable, and as a result, we are now seeing the devastating effects of the failure of millions of mortgage loans.  My initial reaction is that, if effectively followed and enforced, the new regulations, though not strong enough in all areas, will help to prevent similar abuses in the future.  Under these regulations, lenders will only be permitted to make subprime mortgage loans that are sustainable.  Lenders will no longer be able to qualify borrowers based on the value of the home they are purchasing or on short-term, teaser rates. 
“Unfortunately this rule does not cover non-traditional loans, such as hybrid and option-payment adjustable-rate mortgages (ARMs) and interest-only loans, which are also failing in large numbers.  This rule also does not provide adequate protection against a number of predatory practices that unscrupulous brokers and lenders are engaged in, including the predatory use of yield spread premiums to steer borrowers into higher cost loans.  However, I view these regulations as a positive first step and one that will protect many borrowers.”