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The role of abusive lending practices has become of special concern to the Fed in their publicity measures. Since the quiet admission by the FDIC on October 24 regarding abusive loan practices in the mortgage and banking industry, the Federal Reserve has recently continued to sound the alarm for the need for bankers to voluntarily change policies within the banking structure to avoid and eliminate continued banking losses, particularly based in the mortgage sector. Bankers have failed to protect borrowers with proper underwriting and protection as well as predatory loan rates. The Federal Reserve has advised tight-fisted bankers to get on the stick regarding making rapid changes to avoid more defaults and foreclosures.

The Fed is suggesting reform with policy changes to improve the current mortgage banking crisis. When interest rates on many adjustable-rate mortgages change this year, the Fed is advising a wholesale change in business practices by modifying loan rates to avoid additional cost to borrowers on an emergency basis. The Fed has suggested enhanced services including financial counseling with borrowers to avoid foreclosure. The Fed is proposing stricter guidelines for banking practices that are deceptive or abusive. The Fed is proposing a new APR threshold to keep costs to borrowers down in order to avoid massive defaults for the long-term. The Fed also wants to target broker steering, appraisal coercion, unwarranted servicing fees, and deceptive advertising by the banking industry. The Fed proposal prohibits a pattern or practice of disregarding the ratio of applicants income to debt, which has happened in the past. The Fed is also focused on issues like income verification, escrow, taxes and prepayment penalties. These provisions were all abused in the past by lenders on a wide scope. Strangely, Federal Reserve Governor Randall Krozner and other members of the Fed have not mentioned curtailing questionable internal bank instruments and internal bank practices that have made measuring the crisis almost impossible and unpredictable on a worldwide basis.

Banking reform is in the wind. The reform may not have been necessary if the Bush Administration had been willing to admonish the banking industry about their abusive practices as early as four years ago. Instead, the administration gave a voice of acceptance, encouraging no oversight because of the money being infused into the economy at that time. Clearly the Bush Administration was involved in a conflict of interest and has compromised the economy today in order to keep up the appearance of good numbers back in 2004 as well as previously. President Bush declared implicit trust in the bankers in the hope that the good times would last through the end of his administration. As it turned out, the mortgage bubble could not be maintained and the country is in a banking crisis. The President chose to ignore any risks and get on board the profit-making mortgage machine. He could have changed history by throwing up a note of caution. Bush has had the entire information machine of the free world at his beck and call. Bush has had a brother in the banking business. He saw the signs. Because of a conflict of interest, the entire world is now in the clutches of financial distress. That is poor management.

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