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Fed offers new mortgage plan

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KAI RYSSDAL: A very rough look at the calendar shows that we are now about four months into the subprime era. We’ve heard from Federal Reserve Chairman Ben Bernanke intermittently during that period. Mostly him telling us the crisis would be contained. That’s proved not to be the case. So today the Fed Board of Governors endorsed some new rules to protect home buyers from shady lending practices. The proposed regulations are expected to apply to new loans from all kinds of lenders, not just banks. But critics are wondering where the Fed’s been since August. From Washington, Marketplace’s Nancy Marshall Genzer reports.

NANCY MARSHALL GENZER: In the Fed’s brave new world, certain buyers would be able to pay off their loans early without facing a huge penalty, and they’d know exactly what they’d be paying in insurance and property taxes. Fed Chairman Ben Bernanke issued a statement saying, “Unfair practices have no place in our mortgage system.” Brave words, but do they come too late?

ELLEN SCHLOEMER: We think that the proposed rules by the Fed are somewhat disappointing.

Ellen Schloemer of the Center for Responsible Lending says the Fed should have stopped the subprime party much earlier.

SCHLOEMER: When the housing market is thriving, when house prices are going up, it’s easy to plan for the good times. Unfortunately there were a lot of indicators of upcoming problems that I think it was just too convenient to ignore.

Schloemer says bills in Congress are tougher than the new Fed rules. Congress would empower borrowers to sue crooked lenders. But Former Fed economist Ken Kuttner says the Fed figured the subprime partiers didn’t need a nanny.

KEN KUTTNER: The people doing this were all grown-ups. And the Fed’s assumption was the people who were actually making these kinds of loans were in a better position to judge their quality than we are.

Fed defenders also say look at the result of the subprime bash — more homeowners. But Schloemer warns there’ll be a hangover.

SCHLOEMER: Long-term, we’re going to find out that more people lost their home because of subprime loans than actually became first-time home buyers.

The public has two months to comment before the rules are finalized. That probably won’t be a party for the Fed.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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