A Band Aid Approach to the Sub-Prime Mortgage Crisis

We need real leaders who are going to look out for the American consumer. The banking regulators just put together new "tough" regulations to help consumers who have fallen prey to the sub-prime predatory lending practices. This was a recent headline in a CNN money article:

Subprime loans get new standards

Principles issued by bank regulators include new consumer protections; lenders should only offer loans to those who have proof they can repay.

Now that is revolutionary..... How about lending money to people based on the ability to repay it.

These new regulations do nothing but allow predatory lending to continue. One of the main components of a sub-prime loan is the adjustable interest rate. After a period of time, the interest rate can be adjusted upwards. One of the reasons for the adjustable rate mortgage in the first place is to offer a strategy to the consumer to reduce the payment.

Adjustable rate mortgages in some circumstances make sense. However, it should be used only in certain circumstances. The average everyday homeowner has no business getting involved in a loan that one day they will not be able to afford. When that rate re-sets, the mortage payment increases. Most of the time it increases past the point that the consumer can pay it.

How about some real regulations for the mortgage industry?

1) Make it tougher to get an adjustable rate mortgage
2) Make the underwriting standards very black and white - don't give lenders the ability to make the determination whether someone is credit worthy or not.
3) Stop allowing banks to issue these exotic loans

Most importantly, figure out what is going to happen to the 1,000,000's of people who are about to face this nightmare. Studies show that we are in the early innings of these loans resetting. The high foreclosure rate in America is mainly a result of these sub-prime mortages.

With all due respect to the politicians in Washington, how about doing something that helps the people who vote you into the White House and not for the people who pay for it. The finance industry are HUGE contributors to political campaigns. It woul be a setback for the industry if politicians implemented REAL solutions to the sub-prime/foreclosure crisis. (which they allowed to happen on their watch)