Subprime Oversight Still Lacking

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Good morning. The paper is full of various angles on the subprime mess today, and there’s a theme: The market for subprime mortgages is largely unregulated today.

From Kathy Kristof’s interview with Elizabeth Warren, who argues Americans need more financial protections from their government: ‘But 52% of sub-prime mortgages were written by independent mortgage brokers and finance companies, which are subject to no federal oversight.... This division not only creates enormous loopholes, it triggers a kind of regulatory arbitrage,’ she said. ‘If regulators push those institutions too hard, they’re likely to reincorporate under another regulatory umbrella — or under no regulator at all.’

From former Fed governor Edward Gramlich, author of a book on subprime mortgages: ‘The subprime market has developed outside of the regulatory domain; it needs to be brought in.’

Columnist Ken Harney recaps the Federal Reserve’s new guidelines on subprime loans, which he says ‘won’t end toxic loans but should reduce them.’ What’s missing? ‘Not only must state financial regulators adopt mirror-image guidelines to cover mortgage brokers and independent lenders, but even then the guidelines ‘do not have the force of regulations,’ ‘ Harney reports.

Thoughts? Insights?
Photo Credit: Reuters