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
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.
It is critical that YOU take the initiative to educate yourself about money matter right now. The
government is working hard to protect you, but your financial well being ultimately resides on YOUR
shoulders so make sure you visit Crediteria to grow your personal financial intelligence today.
