Fed's lending proposal late, but still welcome
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Mired in the fallout from the subprime mortgage mess, the Federal Reserve Board finally and perhaps too late, has come up with a solution. But it's better than nothing.
The Fed yesterday proposed new rules governing higher-priced mortgage loans. They require creditors to:
Prepayment penalties would also be restricted.
The rules would rein in some of the more egregious tactics used by subprime adjustable-rate mortgage lenders, who lure borrowers with low introductory rates and then reset the rates much higher shortly afterward.
These complex and expensive packages, often with hidden fees, target those with poor credit records — among the least savvy borrowers — who otherwise wouldn't qualify for a loan. But once hooked, these mortgagees find themselves in a home they couldn't really afford in the first place.
The result: A nationwide debris field of foreclosures and damaged credit markets that could lead to a recession.
It's unfortunate that this step — a necessary and welcome one — comes after the subprime mortgage market has already collapsed and the housing market continues to suffer from the effects.
"We always lock the barn door after the horse has gone," economist David Wyss told Bloomberg News.
But clearly some new protections are needed to make the process of buying a home safer and more transparent. And it's about time.
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