OPINION:
The U.S. economy has slowed to a crawl. The federal budget deficit is approaching half a trillion dollars this year. The dollar is tanking. Global and domestic food and energy prices are soaring. And long-term mortgage interest rates are either unchanged or have jumped a full percentage point compared to a year ago, which was four months before the Federal Reserve began slashing short-term interest rates . In this increasingly bleak atmosphere, Fed Chairman Ben Bernanke delivered a speech Monday detailing what a swell consumer advocate the Fed has become since it awoke from the regulatory siesta that it took during the inflation of the housing bubble.
“Prospectively” — no kidding — “we are committed to promoting an environment that supports the homeownership goals of creditworthy borrowers. To this “[prospective] end,” the Fed chairman declared, presumably with a guilty conscience, “the Federal Reserve Board has proposed new regulations to better protect consumers from a range of unfair or deceptive mortgage lending and advertising practices.” In addition to securely locking the barn door after the horses bolted nearly two years ago (when housing and barn prices peaked), Mr. Bernanke reported that the Fed “also is continuing its long-standing practice of providing educational and information resources to help consumers make informed personal financial decisions, including choosing the right mortgage.” He even invited consumers “who believe they have been treated unfairly by their lender” to contact the Federal Reserve Consumer Help Center.
Don’t misunderstand. Because of its demonstrable inability to set or control long-term interest rates, the Fed did not cause the housing bubble, which was largely produced by the trillions of dollars in overseas savings that flooded U.S. financial markets earlier this decade and pushed long-term interest rates to near-historic lows. But the Fed did fail to use its bully pulpit and its regulatory powers to guide the mortgage industry away from its propensity in 2005 and 2006 to issue exotic mortgages to “homedebtors.”
With the collapse of housing prices, many of those “homedebtors” now find that they owe more on their mortgage than their houses are worth. In the unlikely event that lenders and mortgage investors don’t know what’s in their best interest, Mr. Bernanke mounted his bully pulpit and told them (again) that they need to write-off large portions of their loans so that the U.S. taxpayer can then guarantee new mortgages that would be insured by the Federal Housing Administration. As housing prices continue to plummet, that’s not a good idea, especially when those “homedebtors” would still have little, if any, skin in the game.
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