Posted Jul 17, 2007 11:01 pm CDT
A new regulatory pilot program for subprime lenders was announced by a group of federal and state agencies today—the eve of Federal Reserve Chairman Ben Bernanke’s planned two-day testimony before Congress.
Focusing initially on approximately a dozen “nondepository” subsidiaries of banks and thrift institutions, as well as mortgage brokers who work with them, the pilot oversight program will look at their underwriting practices and compliance with federal and state consumer protection laws, reports the Wall Street Journal (sub. req.).
The move, made in the face of mounting criticism of allegedly lax federal regulation of the subprime lenders who issue mortgages to risky borrowers, signals a change in direction for government banking regulation, notes Bloomberg News.
Under Alan Greenspan, the Fed’s famed chairman before Bernanke took over in 2006, deference to free-market principles was the name of the game. Thus, for example, voluntary guidelines were favored by those in charge rather than regulations. But now, in the aftermath of a reported subprime mortgage debacle resulting in widespread fraud and foreclosures, it appears that not only new regulations but new laws overseeing the lending industry are likely.
So far, though, statutes have been enacted at the state level, while federal lawmakers have called for better regulation and new legislation and held hearings. (See previous ABAJournal.com post.)
“Home ownership should remain the American dream, not a nightmare,” Rep. Paul Gillmor (R-Ohio), told Bloomberg. He is co-sponsor of legislation to convert the new pilot regulations into law.
The regulations are a joint project of the Fed, the Office of Thrift Supervision, the Federal Trade Commission, the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, according to the Journal.