Fed plans new rules to protect future homebuyers
Tuesday July 8, 9:46 am ET
WASHINGTON (AP) -- The Federal Reserve, trying to stabilize a shaky U.S. financial system, may give squeezed Wall Street firms more time to tap the central bank's emergency loan program, chairman Ben Bernanke said Tuesday.
And, in an effort to prevent a repeat of the current mortgage mess, Bernanke said the Fed next week will issue new rules aimed at protecting future homebuyers from dubious lending practices.
The rules will crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers -- those with spotty credit or low incomes -- who were hardest hit by the housing and credit debacles. The plan would apply to new loans made by thousands of lenders of all types, including banks and brokers.
It would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower's income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower's ability to repay a home loan from sources other than the home's value.
I guess it figures that more regulation is seen as the answer to the credit problems. Never mind the fact that artificially low interest rates under Greenspan gave the impression of easy money to the banks and lenders who then determined to pick up the subprime market. Artificially low interest rates are seen as a economic stimulus because the impression of easy money and easy credit sure is appealing to a nation and people deeply in debt. It worked in the '90's and helped stall the necessary recession, and it looks like it may keep the economy out of another recession in the short-term. Unfortunately, this is an unsustainable and deadly practice. Artificial wealth is a short-term answer but absolutely is not a long-term stabilizer of the economy.
The Federal Reserve has a monopoly over money and credit. As much as I'd like to say that it operates in the best interest of the economy and the people, I simply can't. By giving banks first access to what's really an unlimited supply of money, the impression of easy money and easy credit is created and soothes everyones' mind in the short-term. People should be asking: why are these bubbles being created? Why has the economy gone through inflationary and recessionary cycles fairly consistently since the Federal Reserve was created? Why does the Fed make better decisions regarding money and credit than the market? Why does the Fed go completely unaudited? Monetary issues have, for some reason, been fully ignored for many years now. This blind trust in the Fed is more and more turning into a riskier situation. New regulations, new powers, more control are seen as the answer to economic troubles and do not look into what is the real problem. Either people have lost faith in the market or they simply don't realize the ridiculous activities the Fed participates in.
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