Interest Rate Roundup

Tuesday, December 18, 2007

NYTimes: Regulators fiddled while Rome burned

What a great story from the New York Times today: "Fed Shrugged as Subprime Crisis Spread." The essential conclusion: Federal regulators were out to lunch about the mortgage crisis, failing to act early enough and aggressively enough to rein in an industry gone amok. I covered similar ground in a white paper released this past July. The timing of this Times story is no coincidence -- the Fed today is considering new rules to prevent future crises. You can read more about them here. The basic points?

Creditors would be prohibited from engaging in a pattern or practice of extending credit without considering borrowers’ ability to repay the loan.

Creditors would be required to verify the income and assets they rely upon in making a loan.

Prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least sixty days before any possible payment increase.
Creditors would have to establish escrow accounts for taxes and insurance.


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