Lawmakers planning to create a Financial Products Safety Commission
Lawmakers announced today a plan to create a Financial Products Safety Commission that would oversee financial products such as mortgages credit cards, auto loans and retirement accounts. This commission would be similar to the Food and Drug Administration that oversees consumable consumer products. One of the main purposes of this commission is to oversee the mortgage industry. Mortgages have changed and become more complex in recent years. Not only are they more complicated, some of them are also predatory in nature. Many mortgage loans that were offered to people were very destructive. I heard about one company from California that was offering people the ability to pay half of the interest while the other half portion of the interest would be accrued on your principal. Once the mortgage re adjusts, these people are then forced to pay a much higher monthly payment then they could actually afford. Some people were duped into these types of loans while others did not plan how they were going to afford the house in the future. Mortgage brokers were more than happy to facilitate these types of loans as well. Everyone was making money, and people were moving into new houses. Unfortunately the house of cards came crumbling down.
Lawmakers are also looking at regulating the mortgage backed securities markets as well. They want to be requiring that loan originators stay with a portion of the loan to ensure that they have a vested interest that the securities will perform over the long run. Quite frankly, I don’t think that is going to be a good idea. I think credit originators should be able to sell their securitized products freely. The emphasis should be placed on the rating agencies. Regulators need to make sure that the rating agencies are generating unbiased ratings. During the housing bubble the rating agencies were manipulating their scoring methods in order to come up with AAA credit ratings. Rating agencies were under pressure to please banks that in turn wanted to sell more mortgages. Had the rating agencies been more scrupulous and under more regulation, banks would not have a choice then to be careful.
The creation of the securitization markets has helped our country. If banks were not allowed to package and sell their loans, our country would not have been able to grow as it has. Securitization markets have allowed investors the ability to build shopping centers, homes, hotels and all sorts of other infrastructure projects. These projects created jobs that fed our economy for many years. After the fall of Lehman Brothers, these securitization markets have all but dried up creating a lack of credit in our economy. This lack of credit has spurred a viscous cycle that has created job loss and financial hardships. I am in agreement that there needs to be more regulation in certain areas. I only hope that regulators will regulate and strangulate these markets.
Lawmakers announced today a plan to create a Financial Products Safety Commission that would oversee financial products such as mortgages credit cards, auto loans and retirement accounts. This commission would be similar to the Food and Drug Administration that oversees consumable consumer products. One of the main purposes of this commission is to oversee the mortgage industry. Mortgages have changed and become more complex in recent years. Not only are they more complicated, some of them are also predatory in nature. Many mortgage loans that were offered to people were very destructive. I heard about one company from California that was offering people the ability to pay half of the interest while the other half portion of the interest would be accrued on your principal. Once the mortgage re adjusts, these people are then forced to pay a much higher monthly payment then they could actually afford. Some people were duped into these types of loans while others did not plan how they were going to afford the house in the future. Mortgage brokers were more than happy to facilitate these types of loans as well. Everyone was making money, and people were moving into new houses. Unfortunately the house of cards came crumbling down.
Lawmakers are also looking at regulating the mortgage backed securities markets as well. They want to be requiring that loan originators stay with a portion of the loan to ensure that they have a vested interest that the securities will perform over the long run. Quite frankly, I don’t think that is going to be a good idea. I think credit originators should be able to sell their securitized products freely. The emphasis should be placed on the rating agencies. Regulators need to make sure that the rating agencies are generating unbiased ratings. During the housing bubble the rating agencies were manipulating their scoring methods in order to come up with AAA credit ratings. Rating agencies were under pressure to please banks that in turn wanted to sell more mortgages. Had the rating agencies been more scrupulous and under more regulation, banks would not have a choice then to be careful.
The creation of the securitization markets has helped our country. If banks were not allowed to package and sell their loans, our country would not have been able to grow as it has. Securitization markets have allowed investors the ability to build shopping centers, homes, hotels and all sorts of other infrastructure projects. These projects created jobs that fed our economy for many years. After the fall of Lehman Brothers, these securitization markets have all but dried up creating a lack of credit in our economy. This lack of credit has spurred a viscous cycle that has created job loss and financial hardships. I am in agreement that there needs to be more regulation in certain areas. I only hope that regulators will regulate and strangulate these markets.
Labels: asset backed securities, auto loans, credit cards, Financial Products Safety Commission, Lehman Brothers, securitization markets
Credit Card / Financial news blog post by Todd Holliday at 8:20 PM 