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The Fed and Homeowner Protection

March 22, 2008

mortgage-foreclosure-sketch.jpgWhat is the Federal Reserve is doing to reduce foreclosures, to protect aspiring homeowners from unfair and deceptive practices, and to equip them to choose wisely from among the often confusing array of mortgage options? To hear the Fed, plenty is being done. They’ve proposed more regulations under the Home Ownership and Equity Protection Act (HOEPA), as if more regulations always solve problems. Ben Bernanke has readily admitted “far too much of the lending in recent years was neither responsible nor prudent. The terms of some subprime mortgages permitted homebuyers and investors to purchase properties beyond their means, often with little or no equity. In addition, abusive, unfair, or deceptive lending practices led some borrowers into mortgages that they would not have chosen knowingly.”

Bankers and lenders came to depend on an upward-spiraling housing market to continue to finance their grand plans. Bankers wanted buckets of money. Borrowers wanted their piece of what has been sold as “the American Dream”. Now, investors who purchased homes in the hope of price appreciation seem particularly likely to walk away from “underwater” mortgages. Lending to investors increased from an estimated 5% in the mid-1990s to 17% in 2006.

Then Bernanke involves himself in a little obfuscation: “The deterioration in underwriting standards that appears to have begun in late 2005 is another important factor underlying the current crisis.” Mr. Ben, that “sudden rise” in predatory lending could not have had enough impact to create a mortgage crisis that began with a vengeance the summer of the following year. This crisis was the culmination of events derived from predatory lending and profiteering practices that began much earlier. To hear Bernanke tell his truth, the lending debacle evolved from nine months of predatory and questionable lending. Bunk. So much for his version of the truth. Bernanke is obsessed with publishing the notion that the mortgage banking crisis resulted from a short-time of reckless banking and mortgage activity when the truth is closer to 7 years. President Bush spoke to the media in 2004, readily admitting that creative banking was responsible for the much-needed boom after the twin-tower collapse. This creative banking resulted in the economic position the U.S. is in today compounded by realities of two U.S. war fronts.

What has the Fed done for homeowners and Americans? Precious little has been done other than attempt to diminish public fears. Ideas, proposals and regulations after the fact are what the Fed has to show for its commitment. The privately-held corporate Fed has been boosted into its glorious position by the U.S. government because the government does not want ultimate responsibility for the money supply of the country, even though it is mandated by the Constitution. We live in a laughably unaccountable world. Fathers that are called “deadbeat dads” and victimized through unconstitutional federal law are held to a higher standard than politicians and bankers. Now, that is laughable.

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