Banking Law
Fed Criticized in Subprime ‘Train Wreck’
Posted Aug 13, 2007, 05:45 am CDT
By Debra Cassens Weiss
Panelists at the ABA Annual Meeting had a question for the Federal Reserve Board, now considering regulations to protect homeowners who take out risky subprime loans.
What took you so long?
Panelists said signs of the meltdown in the subprime mortage market have been evident for a long time, the ABA Journal reports. Among other things, the regulations would bar prepayment penalties and require escrow accounts for taxes and insurance.
“This train wreck has been coming,” said University of Virginia bank management professor Richard F. DeMong. “We’ve known it was coming. ... What happened is that we just ignored it.”
The regulations, expected by the end of the year, are being drafted as adjustable interest rates used in about 80 percent of subprime mortgages are scheduled to reset for some $600 billion in loans. Many borrowers could see their house payments climb to as much as 60 percent of their income.
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