The great debate, right now, is whether the Fed should step in and regulate foreclosures or should we let the free market regulate itself through its own controls, checks and balances.
First let’s establish that under the Home Ownership & Equity Protection Act of 1994, the Fed has the power to set such regulation which compel lenders to tighten up on their lending practices and establish a more transparent lending process that is a lot less predatory than some we see at the moment.
According to ACORN, as one of the nation’s top three regulating agencies for the financial industry, the Fed has a responsibility to prevent abusive lending practices. Its president, Maude Hurd has often gone on record to say that ‘The Fed could step in right now and help stem the tide of foreclosures, American homeowners shouldn’t have to wait for Congress to pass new legislation.’
Some of the recommendations made to the Fed by ACORN include:
- Eliminating prepayment penalties on subprime mortgages
- Barring lender approvals for loans a borrower cannot afford
- Limiting use of no documentation/stated income loans
At the moment Congress has not decided one way or another and neither has the Fed decided to make a stand and force lenders to adopt stricter practices and this has left many potential homeowners exposed to lending practices which may, in turn, lead them into situations where they could not meet their debts.
Owning a home is part of the great American Dream and, potentially, anything that is done to make it harder for people to achieve it strikes at the very heart of a sacred cow. However there is a lot to be said against accepting lending behavior that only serves to increase the profits of the lender. Predatory lending practices which do not permit American home owners to fully understand their financial commitment and, as a result, later on lose their home, ultimately, harm the economy at large.
An economy where the number of foreclosures disproportionately reflects the number of new and established home buyers is an economy that is teetering on the verge of a recession with a real shrinkage of services in terms of building new homes, developing them or fixing them and this has a knock-on effect on the retail trade.
It may well be that the market will see sense and predatory lending practices will stop as lending organizations and institutions begin to self-regulate their industry, but if that does not happen the Fed will need to step in or risk having the great American economy go into a fatal tailspin.
