Consumer Groups, Loan Industry Clash over Mortgage Regulations

April 29, 2008 10:00 AM
by findingDulcinea Staff
The Federal Reserve is developing new rules to prevent abuses by mortgage lenders. Borrowers’ advocates claim the rules fall short, while banks deem them intrusive.

30-Second Summary

Over the past few months, the Fed has been working to retool the standards governing sub-prime mortgages. However, the proposed changes have been vehemently opposed by the home-lending industry.

Applicable to only new loans, the Fed’s guidelines will require lenders to show that potential borrowers can comfortably afford their mortgages, refrain from some types of deceptive advertising and point out the hidden fees in interest payments.

Smaller, local banks fear that the rules will discourage them from issuing loans. And larger lenders fear an increase in lawsuits.

The American Bankers Association, the Mortgage Bankers Association and the Independent Community Bankers of America, the three leading mortgage industry trade organizations, have filed three separate complaints to the Fed.

Richard F. Syron, head of government-supported mortgage securities company Freddie Mac, writes in USA Today that regulation of the mortgage market has to be careful “and provide a reasonable and competitive return to the shareholders whose money makes our mission possible.”

Kieran P. Quinn
, president of the Mortgage Bankers Association and chair of Credit Suisse’s mortgage lending unit Column Financial, told The New York Times, “We support many of the provisions in the proposed rule, but we do have concerns about the increased regulatory burden, liability and reputational risks that lenders might face.”

However, Cornell University economist John Frank argues in The Washington Post that the responsibility of the housing crisis “rests squarely on regulators who permitted the liberal credit terms that created the housing bubble.”

See Reuters coverage

Headline Link: ‘Loan Industry Fighting Rules on Mortgages’

Audio: ‘Why Do We Borrow So Much?’

Background: The sub-prime mortgage crisis

Opinion & Analysis: Responsibility for mortgage-crisis bailout

Reference: The makings of a crisis and mortgage basics

Related Topic: ‘U.S. Mortgage Crisis Goes Global’


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