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No Surprise Here…Mortgage Industry Challenges Fed’s Proposal to Tighten Lending Standards on Exotic Mortgages

The Federal Reserve’s Proposal a few months back to require more stringent verification requirements for new mortgages under so-called ‘exotic’ terms was not surprisingly met with significant resistence by 3 of the leading banking trade groups:  the American Banker’s Association, the Mortgage Banker’s Association, and the Independent Community Bankers Association.


The legislation would force lenders to show that sub-prime borrowers are able to afford the loans for which they’re applying.  Gee, there’s a novel idea that should have been put in play a long, long time ago.


The groups argue that implementation of the policies would make some creditworthy individuals unable to qualify for financing and would increase the costs of mortgage loans, apparently in the form of administrative overhead and legal costs.


Perhaps another reason for the resistence is the fact that the regulations would require more transparency of formerly ‘hidden’ fees paid to the mortgage broker.


This is sure to be an intersting battle, as influential banking lobby groups try to gain traction at a time when many policymakers and ‘average’ citizens alike place much of the blame for today’s housing market crisis squarely on the mortgage industry.


If the proposal is intelligently designed and implemented so that it doesn’t bog down the system, who can argue with the objectives??


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