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Federal Policy Maker Slams Banking Industry Over Subprime Market
By kevin | March 13, 2008
Federal Reserve policymaker Fred Kroszner spoke out against the banking industry on Tuesday, delivering heavy criticism for their lack of care in lending and lending policy regarding the subprime market and its effect on the housing and mortgage market.
Kroszner’s remarks have echoed the sentiments of many policymakers, public officials and citizens. Banks and lenders have been blamed for a large part of the foreclosure boom and the downturn in the housing market due to what many have considered to be questionable lending practices.
One of the leading causes of foreclosures have been adjustable rate mortgages, the coreof the subprime market, which became extremely popular in the past decade. Offering low initial costs and down payments in exchange for fluctuating, sky high interest rates after the first year, these loans were aggressively marketed to low income buyers who had little money to afford a down payment on a home. Ironically, these types of borrowers are also the most likely to be unable to afford the rising payments required by the later stages of the loan. With federal interest rates extremely low at the time, banks handed ARMs out quite easily, and Kroszner blamed them for not seeing the folly in this earlier.
Like other officials as of late, Kroszner stressed the need for tighter lending practices, so that disasters like the subprime market can be avoided in the future.
Topics: Sub Prime Market |