Friday, July 24, 2009

The Fed: Bull-Dogged Into Regulation Z Reform

In what amounts to little more than a complete waste of time, Ben Bernanke and the Federal Reserve Board have been bull-dogged,rail-roaded, pressured etc. into suggesting several "reforms" to the Truth-In-Lending Act, known fondly as Regulation Z. Doctor Bernanke has spent the past two days in front of Congress, attempting to defend the Fed's mortgage oversight role, and apologizing for the Fed's lack of intervention into the mortgage industry's consumer-related practices. The Federal Reserve Board was politically adept enough to issue a press release on the subject, transcribed in part below:

"The Federal Reserve Board on Thursday proposed significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit (HELOCs). These changes, offered for public comment, reflect the result of consumer testing conducted as part of the Board's comprehensive review of the rules for home-secured credit. The amendments would also provide new consumer protections for all home-secured credit."

"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," said Federal Reserve Chairman Ben S. Bernanke. "It is often said that a home is a family's most important asset, and it is the Federal Reserve's responsibility to see that borrowers receive the information they need to protect that asset."


"In developing the proposed amendments, the Board recognized that disclosures alone may not always be sufficient to protect consumers from unfair practices. To prevent mortgage loan originators from "steering" consumers to more expensive loans, the Board's proposal would:

  • Prohibit payments to a mortgage broker or a loan officer that are based on the loan's interest rate or other terms; and
  • Prohibit a mortgage broker or loan officer from "steering" consumers to transactions that are not in their interest in order to increase the mortgage broker's or loan officer's compensation. "

The sad thing is, these hearings were never intended to be conducted for the benefit of the consumer. Rather, the hearings and subsequent regulatory "reforms" are nothing more than a cheap circus act; performed by Congress, and designed to give them some face time spent scapegoating anybody other than themselves for the financial crisis. Bernanke and company understand this, and are simply participating in the insanity so that Congress doesn't strip away any of the Fed's cherished independence. As for the consumer, we would note that in all likelihood, nothing will change except for the fact that he will be forced (to pretend) to read another set of worthless "disclosures". And in terms of trying to prohibit mortgage brokers from "steering" clients to higher commission products: good luck. If a mortgage broker was engaging in this sort of behavior prior to Congress noticing, it is likely that nothing short of excommunication from the country will prevent him from continuing.
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