Says Patricia McCoy, a law professor at the University of Connecticut: "Congress never likes to blame themselves, but in this case there's no question they bear some of the responsibility." Indeed, only now is Congress talking about enacting some tougher regulations that they could and should have pushed through 10 or 20 years ago.
McCoy points to two key pieces of legislation that are at the root of the current mortgage crisis: the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) and the Alternative Mortgage Transactions Parity Act of 1982 (AMTPA).
The former abolished state usury caps that had limited the interest rates banks could charge on primary mortgages - and, in the process, gave banks more incentive to make home loans to folks with less-than-perfect credit.
Though DIDMCA did eventually open the door to some predatory lending in low-income communities, McCoy thinks that, on balance, the 1980 legislation was valuable in the way it deregulated the mortgage market and made home loans more available. It is AMTPA, the 1982 law, that McCoy sees as most problematic.
Prior to the passage of AMTPA, banks were barred from making anything but the conventional fixed-rate, amortizing mortgages. AMPTA lifted those restrictions, giving birth to all the new and exotic mortgages that have so many borrowers in hot water today.
"One of the problems was that there were no substitute regulations to make sure these new mortgages didn't turn out to be exploitative," says McCoy.
McCoy gives a bit of a pass to the 1982 Congress, as it would have been difficult for them to anticipate the growth of the subprime market (in 1982, it was hard for low-income people to get any mortgage) or the willingness of lenders to give interest-only mortgages to the borrowers in the worst position to afford such a loan. ...
"Certainly by the late 1990s, Congress knew of the problems," says McCoy. "It had plenty of time over the past 10 years to do something, and it did nothing."
Thursday, January 31, 2008
More for the timeline of legistlative, regulatory and enforcement failures which, if I haven't been clear, I would like someone else to put together.