The Federal Reserve Bank is currently researching ways in which to provide much needed relief for the sub-prime housing crisis that is tearing apart consumers particularly in the mid-west states where job losses are occurring very heavily, mainly due to lay-offs in the auto manufacturing industry.
In the coming weeks, the Federal Reserve will be proposing new regulations in advertising financial offers such as credit cards and mortgages particularly in regards to disclosures. The Federal Reserve will be looking into how to outlaw unfair or deceptive advertising practices deployed by the financial sector.
Here is a break-down of what the Federal Reserve has been and will be doing to protect consumers from unscrupulous lenders that prey on people who are less informed.
1. Coordinated enforcement of consumer protection laws
The Federal Reserve has been involved in researching, monitoring and examining sub-prime credit card and mortgage lenders through a cooperative initiative with individual state regulators. The Federal Reserve is continually reviewing consumer protection laws for compliance as well as review the terms by which sub-prime lenders grant loans to consumers.
This is an excellent initiative by the Federal Reserve because the end result will be fewer bad loans being issued.
If you are a sub-prime consumer, on the surface this may sound bad, however it is a good thing because you will not end up in a situation where you have a line of credit which you can’t afford to repay. You are much better off getting rejected for credit than having to try to pay for a loan that you simply can’t afford.
2. Loss mitigation efforts
The Federal Reserve is working with lenders to set guidelines for restructuring loans that are in delinquent and could be facing foreclosure and keep the consumer in their home while providing the lender ongoing recovery of the loan.
Note: If your mortgage is up for renewal soon, you may want to take a proactive stance and call your bank as soon as possible to negotiate your options in order to stay in your home. There is legislation in place to help you keep your home a prevent bankruptcy.
3. Consumer protection regulations
The Federal Reserve will use it’s authority under HOEPA (The Home Ownership and Equity Protection Act) to devise rules and regulations to prevent unfair or deceptive advertising practices particularly to the sub-prime market.
While it’s nice that the Federal Reserve is looking out for you, it’s best to educate yourself and take responsibility for your choices. If you start learning about finances right now and avoid taking on too much debt you are going to live a much happier life.
Having a house that you can’t afford is far worse than renting an apartment that you can afford. Live within your means, by that, I mean spend less than what you make and all will be fine. Go outside what you can afford and you will know stress far beyond what you ever care to experience.
Legislative Responses to the Sub-Prime Lending Crisis
To address the shady lending practices Congress is working on legislation to encourage responsible lending. One such action taken is The Mortgage Reform and Anti-Predatory Lending Act of 2007.
The Mortgage Reform and Anti-Predatory Lending Act of 2007 is very new, I believe that this act came into existence in October and there are issues that still need to be addressed in the act. The good news is there is forward motion to affect change in lending.
One modification to the bill that is being considered now is how loan modification or workout plans are performed. Lenders are already reaching out to clients to help avoid bankruptcy and it will be interesting to see how the Mortgage Reform Act develops and transforms into a law that will be beneficial to both lenders and borrowers.
Another modification that is relates to stiffer penalties for lenders that continue to use deceptive advertising practices to lure you into their loan offers. By levying heavy fines on organizations that engage in advertising that is confusing and misleading the financial consequences will certainly help to curb the problem.
Closing thoughts from the editor-in-chief at Crediteria.com
While it’s wonderful that there is legislation in the works to help consumers in the sub-prime market, it’s a sign of poor financial education.
America is failing to educate people about finances and this is the core problem. Consumers take on bad loans when, if properly educated, would never do so.
It’s time for the American school system to incorporate real world education about credit cards and loans starting at a young age so the future of America will not be doomed to the same fate as millions of people are suffering right now.
If you are a sub-prime consumer and you are reading this right now, make a point of taking responsibility and getting the education you need. Consider a trip to your local library and start reading about how money works. I strongly recommend that you start your financial education by reading “Rich Dad, Poor Dad” by Robert Kiyosaki. Robert talks a lot about financial intelligence, he writes in a very easy to read format and explains things in terms that anybody can understand.