February 10, 2013

Mortgages and Overregulating

"New federal regulations require mortgage lenders to do what should go without saying: verify that prospective borrowers can pay.... An “ability-to-repay” rule, adopted last month by the Consumer Financial Protection Bureau and effective January 2014, is intended to protect borrowers from again falling victim to risky lending." New Standards For Safe Loans, February 10, 2012
This an example of the government passing a new regulation where existing rules already exists but without government enforcing them. Regulators need to identify and punish those who break existing laws so their peers have an incentive to obey the rules. There should be people going to prison. Instead of paying bonuses, financial institutions should be paying retribution to those in society that were unjustifiably harmed by their malicious and intentional wrong doing.

The Federal Deposit Insurance Corporation (FDIC) for more than a half century has rules that require a bank to do its best to make safe and sound investments. A loan that is not properly underwritten is not a safe and sound investment.

The Securities Exchange Commission (SEC) is entrusted with the duty to assure that brokerage firms and investment banks provide full and adequate disclosure to potential investors on any securities offered to financial institutions and the general public. They failed to do this with the securities that were backed by sub prime loans. Further, they bought off the rating agencies, with large underwriting fees, that were suppose to opine on the quality of these investments.

More regulations were not needed. The enforcement of old regulations is what is lacking. Why is this the case and who is at fault? More

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