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CreditRepGal
591 Posts |
 Posted - 07/08/2008 : 12:00:58 PM
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Fed to crack down on shady lending practices
Bernanke: Fed may extend emergency loans program for Wall Street
updated 2 hours, 44 minutes ago
WASHINGTON - In an effort to prevent a repeat of the current mortgage mess, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday that the Fed will next week issue new rules aimed at protecting future homebuyers from dubious lending practices.
And in an effort to stabilize a shaky U.S. financial system, the Fed may give squeezed Wall Street firms more time to tap the central bank’s emergency loan program, Bernanke said.
The new lending 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.
In an extraordinary action, the Fed in March agreed to let investment houses go to the Fed — on a temporary basis — for a quick, overnight source of cash. Those loan privileges, which are supposed to last through mid-September, are similar to those permanently afforded to commercial banks for years.
“We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end should the current unusual and exigent circumstances continue to prevail in dealer funding markets,” Bernanke said in prepared remarks to a mortgage-lending forum in Arlington, Va.
The Fed’s decision to act — temporarily at least — as a lender of last resort for Wall Street firms was made after a run on Bear Stearns pushed the investment bank to the brink of bankruptcy and raised fears that others might be in jeopardy. It was the broadest use of the Fed’s lending powers since the 1930s.
Bear Stearns was eventually taken over by JPMorgan Chase & Co., with the Fed providing $28.82 billion in financial backing.
Those controversial decisions have drawn criticism from Democrats in Congress and elsewhere that the Fed is bailing out Wall Street and putting billions of taxpayer dollars at risk.
Bernanke, in appearances on Capitol Hill has said he doesn’t believe taxpayers will suffer any losses.
In his speech Tuesday, the Fed chief defended those actions anew. If the Fed didn’t intervene, he said, problems in financial markets would have snowballed, imperiling the country.
“Allowing Bear Stearns to fail so abruptly at a time when the financial markets were already under considerable stress would likely have had extremely adverse implications for the financial system and for the broader economy,” Bernanke said to the mortgage forum, organized by the Federal Deposit Insurance Corp.
The Fed’s consideration of giving Wall Street firms more time to tap the Fed’s emergency loan program is part of an ongoing effort by the central bank to bring back stability to fragile financial markets and help to bolster shaky confidence on the part of investors.
Policymakers — in the White House, in Congress and other federal agencies — will need to work together to come up with ways to make the U.S. financial system more resilient and stable and to prevent a repeat of the types of problems that brought about the end of Bear Stearns, an 85-year-old institution, Bernanke said.
Although those efforts are already under way, it will fall to the next president and next Congress to settle them.
The Bush administration has proposed revamping the nation’s financial regulatory structure. That plan would make the Fed an ubercop in charge of financial market stability. But the Fed would lose daily supervision of big banks. Bernanke said the Fed must maintain this power if it is to be an effective overseer of financial stability.
The Fed, which regulates banks, and the Securities and Exchange Commission, which oversees investment firms, announced an information-sharing agreement on Monday aimed at better detecting potential risks to the financial system.
Over the longer term, though, Congress may need to adopt legislation to bolster supervision of investment banks and other large securities dealers, Bernanke said.
Bernanke recommended that Congress give a regulator in the future the authority to set standards for capital, liquidity holdings and risk management practices for the holding companies of the major investment banks. Currently, the SEC’s oversight of these holding companies is based on a voluntary agreement between the SEC and those firms.
“Strong holding company oversight is essential,” he said.
Bernanke also said that a growing number of central banks in recent years have been given the statutory authority to oversee systems for processing financial transactions by securities firms as well as overseeing traditional banking transactions. “A strong case can be made for granting the Federal Reserve explicit oversight for systemically important payment and settlement systems,” he said.
And, the Fed chief favors looking into an idea — raised by Treasury Secretary Henry Paulson — to create formal procedures to make sure that if an investment firm fails it won’t wreak havoc on the broader economy. Such procedures, which allow for a more orderly liquidation, are in place for banks.
The housing, credit and financial crises have bruised the economy. Growth has slowed and employers have cut jobs every month so far this year.
Bernanke said that “it is unrealistic to hope” that financial crises can be entirely eliminated, while maintaining an innovative financial system. “Nonetheless, recent experience has illustrated once again that financial instability can have serious economic costs,” he said.
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hpmfinancial
1451 Posts |
Posted - 07/08/2008 : 12:05:55 PM
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| How wonderful, the government needs to decide how the banks can lend and what risk is acceptable to them. |
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CreditRepGal
591 Posts |
Posted - 07/08/2008 : 12:24:32 PM
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| so long stated mortgages but anyone should be able to verify their income at least by bank statements..... in another article I read how students trying to be approved for loans to go to college are being affected because of this whole mortgage crisis. Less money and lenders pulling out. How sad to think that the next generation will be suffering because of our mistakes. I really hope this all resolves itself soon. Too many people I know are affected.. out of jobs, out of homes... credit destroyed... enough finger pointing, I just want to see some action that puts a stop to this downward spiral. |
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tammym
44 Posts |
Posted - 07/08/2008 : 12:43:55 PM
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quote:
Originally posted by hpmfinancial
How wonderful, the government needs to decide how the banks can lend and what risk is acceptable to them.
Considering how badly the banks messed it up this last time and that the government is ultimately backstopping the banks this is a very prudent move.
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