[Retire Soon]

Quote:

Originally Posted by brewer12345 I suppose I might as well be throwing meringues into a black hole trying to talk about facts on this subject, but one more try: The federal regulators were doing what they were supposed to be doing: they were regulating and restraining the banks in their lending. If you look at the last two years worth of "proposed guidance open for comment" (i.e. this is what we will force you to do shortly, so stop doing it now) that the bank regulators issued, you will see: restrictions on subprime lending, restrictions on construction lending, requirements to qualify borrowers for loans based on verifiable income, etc. system... The problem now is that the non-bank lenders (who were regulated by the states if at all) have pissed in the punch bowl. Want a cup? But it isn't the bank regulators' fault.

Brewer12345,

This Feds "Proposed Guidance open for comment" was a joke as was reported yesterday in a New York Times article, entitled, "Fed Shrugged as Subprime Crisis Spread." Regulators waited until December 2005 (the peak of housing prices) to issue "Proposed Guidance" to banks and thrifts. You are wrong in your assertion that the "guidance" as it was originally written applied to subprime loans, because consumer groups were outraged at the time that these new underwriting standards did indeed not apply to subprime loans. In reality, they applied to exotic mortgages, like Option ARM's (some accrued interest is added to principal). The problem here is that exotic mortgages were rarely being made by December 2005, but subprime mortgages were making up 25% of the total mortgage origination.

Finally, the Fed issued another "Guidance" in March of 2007 and this one did indeed address subprime loans. Problem is, these standards were not complete until June of 2007 when over 30% of subprime lenders had gone out of business and more were headed for their demise as well.

Mr. Gramlich, (now deceased) was appointed to the Federal Reserve's Community on Consumer Affairs from 1997 to 2005 and warned Alan Greenspan privately to send examiners into mortgage-lending affiliates of nationally chartered banks (such as Bank of America). Greenspan did not take Gramlich up on his warning because he felt that if the examiners missed any deceptive practices that this would be tantamount to a Fed seal of approval on these lending practices.

Fed Chairman Alan Greenspan was incorrect in his prediction that the, "Housing declines would be local but almost certainly not nationwide." Ms. Bair, Chairman of the Federal Deposit Insurance Corporation in 2006 stated, "Hindsight is always 20-20, but it's clear that the Fed should have acted earlier. Financial innovation is great, but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay."

http://www.nytimes.com/2007/12/18/bu...1&ref=business