Fed plans to curb risky lending
The Federal Reserve, acknowledging that home mortgage lenders aggressively sold deceptive loans to borrowers who had little chance of repaying them, proposed a broad set of restrictions Tuesday on exotic mortgages and high-cost loans for people with weak credit.
I think Dave at TGB does a pretty good job of summarizing the article:
In other news, the Bush administration is proposing having all barns in the United States inspected for horses. If the barns, once containing horses, are empty, then all barn doors are to be shut to prevent any further loss of horses.
I suppose this is all well and good for future borrowers, but the reason the sub-prime fiasco is a crisis has far less to do with the predatory lending practices and much more to do with the financing schemes surrounding them.
In a traditional market situation, the guys extending the credit to people they knew couldn't pay would be the ones holding the bag when the inevitable default came. What happened this time was that the bad loans were made by one company, packaged in with a bunch of other mortgages, and sold off to investors who thought the investment was a lot safer than it really was.
It's a pretty safe bet that if these guys had had to hang on to the loans they made, there wouldn't be anywhere near the number of bad sub-prime loans out there, but as long as the greedy buggers could make piss-poor credit decisions and then toss the bag off to someone else to deal with, you were going to have a whole lot of bad paper being created.
Like with most ponzi schemes, it's great when you're not the one at the end of the chain.
