“About Those Loans”

Today’s New York Times editorial weighs in on Federal Reserve Chairman Ben Bernanke’s announcement that the Federal Reserve is ready to issue new lending rules to restrict subprime and other “junk” mortgages. 

From the editorial:

The new mortgage rules, which are to be issued on Monday, are intended
to help ensure that a debacle of the same nature and scale as the
current one will not be repeated. But unless they are a significant
improvement over the Fed’s previous proposals, they will not go far
enough to protect individual borrowers.

In the past, the Fed has failed to champion rules that would allow a
lender to be sued for issuing a loan that a borrower has no reasonable
ability to repay. Without a real possibility of being called to account
for their actions, lenders are likelier to resume the destructive
practice of making unaffordable loans to produce short-term profits for
their institutions and bigger paychecks for themselves.

The Fed has also balked on banning the practice whereby brokers
maximize their commissions by signing up borrowers for the most
expensive loan possible, even when the borrower qualifies for a cheaper
loan. Instead, the Fed has maintained that disclosure of the practice
is adequate, a dubious assertion given the myriad ways to bury and
distort disclosures. The Fed has also refused in the past to forbid
lenders from penalizing borrowers who repay subprime mortgages early.
Such prepayment penalties keep borrowers stuck in unaffordable
mortgages and hasten default.

Read the full editorial here (subscription may be required).

Through our Foreclosure Prevention Projects, Legal Services NYC is
at the forefront of the national fight against predatory lending
practices in the subprime lending market. Predatory lending practices
lead to foreclosure, homelessness, financial devastation and loss of
hard-earned equity (which is the sole source of wealth for many lower
income homeowners), displacement of long-time residents and
destabilization of neighborhoods. Foreclosure Assistance programs are
offered at Legal Services NYC-Bronx, Brooklyn Legal Services
Corporation A, South Brooklyn Legal Services, and Staten Island Legal
Services.