April 1, 2008 - The federal government's slow response to the meltdown in home mortgage markets has been painfully slow. Although trouble with subprime mortgages had become very public by August of last year, federal regulators have done virtually nothing to date with the possible exception of talking about the problem. On Monday, Treasury Secretary Paulson unveiled a plan for greater regulation of the mortgage industry. But the plan falls short in a variety of areas and is not likely to have a substantial affect on anyone currently facing foreclosure.

One of the biggest problems with Paulson's is that it puts the FED in charge of regulation. To be clear, the FED has always had the regulatory authority to stop many of the mortgage practices that led to the current market troubles. The agency simply refused to use its authority.

Now the FED is supposed to coordinate regulation with four other agencies including the Comptroller of the Currency, the Office of Thrift Supervision, the FDIC, and the National Credit Union Association. These four other agencies also had regulatory authority that would have allowed them to stop certain lending practices before they became problematic. And just like the FED, they all failed to act until after problems with home mortgages were impacting US financial markets.

In a nutshell, the new plan has taken one "do-nothing" agency and placed it in charge of four other "do-nothing" agencies. And this combination will do nothing to prevent a single foreclosure.

But the problem doesn't just lie with the FED. Congress is involved too. "We must take steps now to provide help to families who are hurting," said House Speaker Nancy Pelosi, D-Calif. ACCESS agrees, but we have to point out that legislation to provide for more regulation of lenders has been stalled now for months.  And while Congress continues to "talk", people are losing their homes and lenders continue to offer risky loan products to customers.

Congress has been one of the primary players in creating the current mortgage market mess. It has repeatedly passed banking legislation that strips the states of their ability to regulate lenders, all under the guise of the Commerce Clause of the Constitution. But it is clear that Congress doesn't understand the economy or how to properly regulate it. If it did, then we wouldn't be facing the problems we have today. Time to give regulatory authority back to the states.

Paulson is proposing giving the states some additional authority. But that authority would only be to enforce federal regulations. The states wouldn't be able to force rules that are stricter on lenders in some areas, such as usury laws; meaning that the problem is likely to continue.

Had Paulson's regulatory scheme been in place several years ago, it wouldn't have prevented the current mess. Why? Well because none of the agencies involved chose to use their regulatory authority to protect financial markets or individual consumers. And there is nothing in the new plan that would force them to use their authority any differently than they already have.

Whether or not the Paulson plan is likely to see the light of day is a completely separate issue. It will require Congressional approval. This means that even if it does go into effect, it is likely to be months from now. And it is equally likely that hundreds of thousands of American families will lose their homes while Congress, the FED and the Bush Administration continue to talk about doing something. With an election coming up, maybe we should fire all of the incumbents and start with new blood.

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