A Wizard sounds a warning, but cry wolf syndrome still seems to be in the order of the day. How long do these sycophants have to "monitor" things, until the pit bull leaps up and rips their noses off?:
Subprime lending a worry for Fed exec
By Sue Kirchhoff, USA TODAY
1/12/2004
WASHINGTON — Federal Reserve Governor Edward Gramlich expressed concern Wednesday about some lending practices in the subprime mortgage market and said the central bank was closely monitoring the overall housing sector for signs of price speculation.
During a panel discussion on housing, Gramlich said mortgage brokers, who make about half the subprime loans, might not have incentives for careful underwriting.
Subprime lenders offer higher-interest loans to borrowers with poor credit ratings who may not qualify for prime financing. Most subprime loans are resold on the secondary market.
"The subprime incidence of mortgage brokers without a lot at stake in the game is getting pretty high," Gramlich said.
While initially stating that that portion of the subprime industry was veering close to a breakdown, he later called that phrasing too strong. But pointing to the higher delinquency rates in the subprime market and the fact many subprime borrowers are highly leveraged, he said it might be time to look with a little more jaundiced eye at some practices.
Some organizations representing mortgage brokers have endorsed tighter oversight, while others have laid out best lending practices.
Overall, Gramlich said, the Fed was closely watching U.S. home sales, which have been setting volume and price records in recent years. But he said the housing market did not qualify for specific monetary policy treatment at this point.
Gramlich said while housing price bubbles were possible, there were other reasons, such as land shortages, for strong price run-ups.
"We are always looking for signs that some relative prices are out of line," Gramlich said. "It's certainly possible it's a bubble, but it's also possible, for various reasons, the cost of housing has shifted."
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