Don’t Believe the Hype: Why Gentle Ben Won’t Crack Down on The Mortgage Industry

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Sometimes a headline doesn’t sound quite right, and this one this morning didn’t: ‘Bernanke: Mortgage Crackdown Coming.’ The story, by reliable AP Economics Writer Martin Crutsinger, says in part: ‘Facing criticism from members of Congress about lax regulation, Bernanke also promised that the Fed would do everything possible to crack down on abuses that have put millions of homeowners in jeopardy of defaulting on their mortgages.’

I clicked over to The New York Times and found something that made more sense -- same facts, different emphasis: ‘Bernanke... appeared skeptical of tighter regulation of mortgage lenders by the central bank or by Congress.’

Mortgages can be complicated, but this doesn’t have to be: there will be some lip service to ending mortgage ‘abuses,’ but meaningfully tighter regulation of mortgage lending would probably drive housing prices lower, and The Fed does not want to do that.

Example: In an upscale, gated community in Palmdale, where at least one home is in pre-foreclosure, many more are for sale in the $600,000 range, which is a lot of money in The Antelope Valley. The best hope of selling these houses is through 100%, interest-only financing. Anything the Fed does to discourage that kind of financing will make things worse in Palmdale, and there is zero indication the Fed wants to do that.

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Photo Credit: MSNBC.com