"Fed Plans New Rules to Protect Homebuyers"

“Fed plans new rules to protect future homebuyers”

—December 18th, 2007⁴²⁹

The media and the man on the street constantly blame evil greedy lenders for causing the subprime crisis and thus poor homeowners to lose their homes. In the small minority of instances where lenders were clearly guilty of wrongdoing, homeowners could rightfully sue the lender in court for damages. But most cannot because their predicament is their own fault. Yet few people want to admit this reality. We hear and read stories about people, and most of us personally know people, who were convinced that housing prices would always only go higher,⁴³⁰ and bought houses they couldn’t afford because they thought they could make up the difference when the house appreciated, which, they thought, must surely happen.

The subtitle of this article reads “Fed plans new rules to protect future homebuyers from dubious lending,” and the writer states that “The rules will crack down on a range of shady lending practices that has burned many of the nation’s riskiest ‘subprime’ borrowers.” Yet the primary rules proposed by the Federal Reserve in the article were largely aimed not at any wrongdoings by the lender, but by the borrower, because it knows the borrowers were the guiltiest party. They are as follows:

• Restrict lenders from penalizing risky borrowers who pay loans off early
• Require lenders to make sure these borrowers set aside money to pay for taxes and insurance
• Bar lenders from making loans without proof of a borrower’s income
• Prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.

The first proposed rule changes the structure of the loans that the borrower would have willingly agreed to. The lender’s penalizing loans that are paid off early might enable them to charge lower interest for the loans. I don’t know exactly what their business model is, but this practice does not involve misleading or cheating the borrower unless this term is not laid out in the contract, whereupon the borrower should not be responsible for honoring the term. The other rules simply involve putting the onus on the lender to act like a mother to the borrower, stopping the borrower from freely and willingly making possible irresponsible decisions. If people with bad credit — people who don’t honor their debts — who make stupid choices should not be allowed to make their own future decisions, how can they be trusted to make the right decisions in voting for a politician to run our entire economy? They can’t; but we can bet they will vote to take money from the rich so that they can buy more stuff they can’t afford.