Subprime Regulations Needed Yesterday

The handwringing of the Federal Reserve Board, Congress, and regulatory agencies such as the office of the Comptroller of the Currency over the problems associated with subprime mortgage loans is hypocrisy of the highest magnitude.

Consumer and industry groups have been pushing Congress for more than six years to pass comprehensive legislation that would protect consumers from the excesses of the subprime market. But lawmakers have done nothing. Similarly, the Fed, the OCC and their regulatory counterparts have opted time and again to protect the interests of their clients: the large banks and thrifts whose subsidiaries generate the overwhelming majority of subprime loans made in this country each year.

The shock and surprise at high foreclosure and default rates is mind-boggling. Both Congress and the Fed, for instance, have known for years that subprime lenders routinely do not verify any income or asset information, that they often fail to adequately explain the terms of their loan products to borrowers, and that they offer products - such as short-term adjustable-rate loans - that are designed to ensure that borrowers are stuck in a cycle of refinancing and debt.