U.S. PIRG Consumer Blog: Bloomberg: Housing credit collapse laid on Fed and OCC

I've just seen an excellent Bloomberg story Fed, OCC Publicly Chastised Few Lenders During Boom by Craig Torres and Alison Vekshin. I'll admit that I haven't read every story on the issue, but I am trying at least to keep up with the news from Europe this week. But this is the first story on the problem I have seen that attempts to be more than a simple horse-race report. Torres and Vekshin analyze the U.S. sub-prime housing credit collapse now rippling through the broader markets as a regulatory failure by the powerful and arrogant U.S. regulators-- the Federal Reserve Board and the OCC.

The story goes on to quote Richmond regional Fed bank president Jeff Lacker:

"There is going to be a fraction of people that get the wrong product and that is regrettable," Richmond Fed President Jeffrey Lacker said in an interview. "Should we do something to limit that probability? Well, we could, but it would also limit credit to people for whom that is the right product."

Over at the non-profit Financial Markets Center, here's what Tom Schlesinger, one of the nation's leading Fed-watchers -- and certainly the only Fed-watcher who looks out for consumers and communities -- said in 2005 (scroll down a few paragraphs) about a speech by Lacker:

Informing his audience that he would "not be speaking from the perspective you might expect from a banking agency official," Lacker proceeded down a well-worn laissez-faire path. He praised the overall expansion of retail credit, particularly the growth of credit-card lending and the emergence of zero-down-payment mortgages. Then he characterized attempts to moderate speculative bubbles and reform abusive loan practices as a cyclical outbreak of "consumer credit backlash" driven by tear-jerking anecdotes, grandstanding politicians and the irrational "belief that growing debt is a sign of decaying values and thrift."

In February, we joined 80 leading groups in urging the regulators to ensure that consumers with subprime hybrid ARMs (I call them HARMS) and other esoteric and risky loan products were adequately protected. We then commended the guidance that came out in March. But guidances are only the first step; a key part of the solution is to publicly hammer firms that abuse the system. These agencies rarely do that. The Bloomberg story goes on to cite several of our colleagues who explain that the problem is a lack of will that leaves consumers without a remedy:

"There is no question that mortgage brokers are on the street committing systematic fraud on the American homeowner," said Irv Ackelsberg, a Philadelphia attorney who testified at a Fed hearing last year in the city. He said there is a "lack of will" on the part of the Fed to use its power to stop abuses.

Here's another excerpt:

Critics say the regulators' private responses harm consumers by depriving them of information they might need to take action on their own behalf. "Borrowers hurt by an abusive practice have the right to a remedy," said Alys Cohen, a staff attorney at the National Consumer Law Center in Washington.

Everyone's heard of the Fed. But, if you've never heard of the OCC, don't worry, you're not alone. There are probably national banks out there that've never heard of it. As the story points out, it likes a light regulatory touch. It rarely goes after credit card banks for their less risky-to-the-system but unfair practices either, unless those credit card banks are small and obscure. Chase, for example, can apparently do what it wants. Here's PIRG's OCCWatch site, also.