Subprime Fiasco no Coincidence

Does it seem important to anyone else that banks, realtors, and insurance lobbied so strongly for deregulation and greater independence from government scrutiny? It does not seem coincidental that the mortgage products failing so miserably in 2006 and 2007 were not even available to borrowers until late 2004 and 2005. Option ARMs, low doc/no doc, stated income, were not available until after consumer protection was restricted in the best interest of the financial institutions.

The Bankruptcy Abuse Prevention and Consumer Protection Act passed April 20, 2005. Mandatory Binding Arbitration became the standard for protecting the business from consumer originated lawsuit. Class Action Reform passed February 18, 2005.

In a speech by President Bush, “By restoring integrity to the bankruptcy process, this law will make our financial system stronger and better. By making the system fairer for creditors and debtors, we will ensure that more Americans can get access to affordable credit.” He was half right. The financial system got stronger, for a while and after the sub-prime fiasco it has become obvious that more Americans got access to credit. Was it affordable? Considering mortgage products with introductory teaser rates, fees charged by mortgage brokers, the lack of government oversight, and weak consumer protection, the is NO.

Most of the protective measures in place benefit the creditors. The borrower can’t sue and bankruptcy has become such an expensive option if you can afford to file, you can probably afford to pay your debts. Most advice currently available from government agencies and financial institutions recommend the property owner negotiate directly with the lender for mortgage modification or short sale before allowing foreclosure or filing bankruptcy.