Members of the Federal Reserve Board plan to issue new regulations for mortgage bankers. Though we're certain the Fed will use reams of paper and lengthy e-mail messages to get the word out, the new rules could be boiled down to a single sentence: Don't shoot yourselves in the feet.
Much of the so-called "subprime mortgage crisis" resulted from bankers failing to exercise simple prudence in dealing with people who sought loans to buy homes. The Fed's new rules include:
- Bankers should require proof of income before granting mortgage loans.
- Factors such as the value of property and borrowers' general ability to repay loans should be taken into account.
- Lenders should require proof that borrowers are capable of paying for insurance and property taxes.
Here in central Iowa, those rules and others intended to ensure that loans are repaid have been followed for many years by mortgage lenders. No one needed to tell them to handle their banks' money with caution.
That's why we have so little sympathy for lending institutions that didn't follow the rules and, as a result, got into serious trouble with loan defaults. And that's why we repeat our longstanding contention that if there is any talk of government "bailouts" of financial institutions, it should not use taxpayers' money to rescue those who got into trouble because of their own failures.
Such bailouts would, in effect, penalize U.S. lenders who have conducted their business responsibly - sometimes at the expense of the growth less prudent competitors enjoy. Neither the Fed nor any other agency of government should reward and thus encourage irresponsible lending or borrowing.