Subprime Oversight Still Lacking

Good morning. The paper is full of various angles on the subprime mess today, and there's a theme: The market for subprime mortgages is largely unregulated today.

From Kathy Kristof's interview with Elizabeth Warren, who argues Americans need more financial protections from their government: "But 52% of sub-prime mortgages were written by independent mortgage brokers and finance companies, which are subject to no federal oversight.... This division not only creates enormous loopholes, it triggers a kind of regulatory arbitrage," she said. "If regulators push those institutions too hard, they're likely to reincorporate under another regulatory umbrella — or under no regulator at all."

From former Fed governor Edward Gramlich, author of a book on subprime mortgages: "The subprime market has developed outside of the regulatory domain; it needs to be brought in."

Columnist Ken Harney recaps the Federal Reserve's new guidelines on subprime loans, which he says "won't end toxic loans but should reduce them." What's missing? "Not only must state financial regulators adopt mirror-image guidelines to cover mortgage brokers and independent lenders, but even then the guidelines 'do not have the force of regulations,' " Harney reports.

Thoughts? Insights?
Photo Credit: Reuters

Comments

[WhitePride]

Sure, it would be nice if the Fed were to put some regulations on the use of its money. Actually, it would be nicer if the Fed didn't exist in the first place.

But real culprit here is Wall Street. They've been buying up mortgage-backed securities with little or no regard for the risk involved. But now that the hedge funds that invest in the MBS market are imploding, the money will soon dry up and there won't be anything left to loan to the subprime market.

[Clarence Wigfall]

Unfortunately, federal regulatory agencies have a reputation and history of largely looking out for the interests of the regulated more than anything else. Then there is that nasty little point that Fed policies hand in hand with FannyMae and FreddyMac are largely responsible for the cheap mortgage money that Wall Street bought up as securitized mortgage paper, which put trillions into the economy as that paper boosted the value of real estate to the heights that it precariously holds now. So now we want them to regulate after their policies and actions are the foundation for the situation today. Huh?

[Bradd Milove]

The San Diego, California law firm of Miller & Milove represents investors defrauded by Brookstreet Securities in connection with CMOs, purported mortgage backed securities and derivatives traded on margin. The firm continues its investigation of the pricing and ratings firms associated with the securities and margin calls.