What authority does the Fed really have?

[Rick Lee]

How can they do this? How can they tell creditors how to lend money, especially, if those creditors don't get their funds from the Fed? Why would requiring more disclosures make a difference, when there are already too many and hardly anyone reads them? Unreal.

U.S. Fed proposes rules to protect would-be homeowners
By Edmund L. Andrews and David Stout

Tuesday, December 18, 2007
WASHINGTON: The Federal Reserve moved Tuesday to impose tough new restrictions meant to curb unfair and deceptive home-lending practices and prevent a recurrence of the meltdown in subprime mortgages this year.

By a 5-to-0 vote, the Fed approved a plan that would tighten provisions meant to protect borrowers and apply them to a far larger share of home loans - whether from banks, mortgage companies or other lenders - than under current regulations.

The proposed rules underscore the more assertive role the Fed is now prepared to take in regulating lending, a big shift from the central bank's approach in the past. In general, the rules are meant to deter unscrupulous lenders from persuading people that they can afford loans that ought to be out of their reach. By extension, the rules are also intended to keep would-be buyers from deceiving themselves about the debt burdens they can shoulder.

"Our goal is to promote responsible mortgage lending, for the benefit of individual consumers and the economy," said the Fed chairman, Ben Bernanke.

"We want consumers to make decisions about home mortgage options confidently, with assurances that unscrupulous home mortgage practices will not be tolerated."

The plan includes provisions that would require more extensive disclosures, restrict advertising and make it harder to lend to borrowers with little or no documentation and a questionable ability to repay.

It would also allow borrowers, in some circumstances, to sue lenders who violated the rules.

The Fed acted under provisions of the Truth in Lending Act and the Home Ownership Equity Protection Act of 1994. In the past, it had been quite cautious about using its authority to clamp down, and the rules were last revised in 2001.

Details of the proposed rules, which could take effect next year after a period for public comment and possible revisions, can be read on the Fed's Web site, www.federalreserve.gov.

In "four key protections," the Fed listed these:

Creditors would be barred from lending without documenting a borrower's ability to repay the loan.

Creditors would have to verify a borrower's income and assets.

Prepayment penalties would be restricted.

Creditors would have to establish escrow accounts for taxes and insurance.

"Unfair and deceptive practices have harmed consumers and the integrity of the home mortgage market," said a Fed governor, Randall Kroszner. "We have listened closely and developed a response to abuses that we believe will facilitate responsible lending."

The action puts the Fed a step ahead of the Congress, which is considering its own steps to tighten restrictions on the home loan industry. A bill put forward by Representative Barney Frank, a Massachusetts Democrat and chairman of the Financial Services Committee of the House of Representatives, would expose mortgage brokers and lenders to legal liability if borrowers are unable to repay.

The Fed did not go as far as proposals by some consumer groups, which sought, for example, an outright ban on prepayment penalties.

What the Fed has been hearing in recent months is a complex blend of personal hardship and dire news for the country as a whole, as waves of foreclosures have swamped the housing market and threatened to mire the economy in a recession.

The housing boom of the first several years seems almost as distant as the boom in technology stocks, but economists have warned that the fallout from the housing slump could be much worse than that from the dot-com bubble.

Many homebuyers whose little slice of the American dream has turned into a nightmare were undone by "teaser rates" dangled in front of "balloon mortgages." When the tempting original rates were supplanted by much higher rates built into the loan, many homeowners could not make the monthly payments.

Those personal misfortunes - whether the result of individual misjudgment, excessive optimism, shady lending or all of those - have mushroomed into a national problem.

The situation is further complicated by the subsequent packaging and reselling of subprime mortgages in ways that are so arcane that even some bankers acknowledge they are befuddled by them.

[RoninLB]

Originally Posted by Rick Lee

How can they do this? How can they tell creditors how to lend money, especially, if those creditors don't get their funds from the Fed? Why would requiring more disclosures make a difference, when there are already too many and hardly anyone reads them? Unreal.

http://www.sonic.net/sentinel/naij2.html

crop

The Federal Reserve was to unite and supevise the entire banking system,

[Rick Lee]

Originally Posted by RoninLB

http://www.sonic.net/sentinel/naij2.html

crop

The Federal Reserve was to unite and supevise the entire banking system,

Ok, so their mere existence is unconstitutional. Fine, I get that. If Congress wants to defer to the Fed for regulating the money supply, I even get that, unconstitutional though it may be. The Fed, however, has zero authority for writing laws on lending practices by creditors who have nothing to do with federal money. Sure, plenty of banks are federally chartered. But lots of mortgage companies have nothing to do with that and, indeed, get all their money from investors, not necessarily Fannie or Freddie either. I would expect the Fed to be far more savvy on this stuff than politicians. But it sounds like they want a bunch of feel good/do nothing measures in place too, just Barney Frank wants.

[frogger]

What are the Federal Reserve's responsibilities?
Today, the Federal Reserve's responsibilities fall into four general areas:

- conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
- supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
- maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- providing certain financial services to the U.S. government, to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nation's payments systems

For an overview of the Federal Reserve and its responsibilities, see The Federal Reserve System: Purposes and Functions (at this link)http://www.federalreserve.gov/pf/pf.htm

[RoninLB]

Originally Posted by Rick Lee

The Fed, however, has zero authority for writing laws on lending practices by creditors who have nothing to do with federal money.

bank lending and private lending must be different.

[Rick Lee]

Most mortgage companies are not banks.

[RoninLB]

Originally Posted by Rick Lee

Most mortgage companies are not banks.

They're also not managed like banks either. I don't know enough on how they will become affected.


for entertainment
A few years ago after the last housing crash my bride was doing "workouts" which means to me "search and destroy" or do what's necessary to balance books.

She's working on a small mortgage bank who grabbed so much $ they were foot loose. The owners son, aka division manager, left his new car still running at La Guardia airport right in front of the airline's entrance because he didn't have time to park it before his flight. He didn't care because he had a few other new ones. His condos were all going belly up etc etc. The mortgage bank's capital were all responsible for his debt.

She commented to a co-worker after being told she's firing to many people.
"To bad, I'm ovulating."