Fed proposes rules for home lending
WASHINGTON -- Activist or cautious regulator? Either way, Federal Reserve Chairman Ben Bernanke appears to be willing to go much further than his predecessor, Alan Greenspan, in cracking down on shady home-lending practices.
Bernanke and his colleagues endorsed a broad plan on Tuesday to give home buyers new protections against dubious practices -- their most sweeping response to a mortgage meltdown that has forced record numbers of people from their homes.
Meanwhile, the Commerce Department said Tuesday housing starts in the U.S. dropped in November and permits for future construction slid to a 14-year low as sales fell and lenders made it tougher to get loans.
Work began on 1.187 million homes at an annual rate, down a less-than-forecast 3.7 percent from October, the department reported. Permits fell 1.5 percent to a 1.152 million pace.
The decline indicates housing continued to depress growth this quarter, extending the deepest housing slump since 1991.
The Fed has been under attack for not doing more to stem the crisis as hundreds of thousands of people lost the roof over their head. The situation raised the odds the country will fall into recession, unhinged Wall Street, racked up multibillion losses for financial companies and resulted in political finger-pointing over who was to blame.
The proposed rules, endorsed by the Federal Reserve Board in a 5-0 vote, would crack down on a range of shady lending practices that has burned many of the nation's riskiest "subprime" borrowers -- those with spotty credit or low incomes -- who have been hardest hit by the housing and credit debacles. The rules also would curtail misleading ads for many types of mortgages and bolster financial disclosures to borrowers.
"Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and indeed, the economy as a whole. They have no place in our mortgage system," Bernanke said.
Also on Tuesday, Treasury Secretary Henry Paulson said government regulators are examining the responsibility of credit-rating agencies giving high ratings to subprime mortgage securities that have plummeted in value.
"We're going to have to look very hard at the role of rating agencies and the securitization process," Paulson said in response to questions after a speech in Kansas City, Mo. "There's a number of things there."
Paulson is on a three-state tour to promote a Bush administration-backed plan to ease the subprime mortgage crisis. In his speech he reiterated his view that "the housing market turbulence will take some time to work through, and that there will be some penalty to growth."