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U.S. Warns Lenders To Elevate Standards

Federal banking regulators yesterday warned banks and other lenders to be more selective about who can get home equity loans and lines of credit because rising interest rates may make it harder for people to repay their loans. A harsh statment made by The office of Comptroller of the Currency, the FDIC, the FED and the National Credit Union Administration (collectively known as the agencies) claims that in many cases, institutions' credit risk management practices for home equity lending have not kept pace with the product's rapid growth and easing of underwriting standards.

Here is the complete text of the statement.

Who doesn't agree that lending standards are more than a bit loose? The idea is fine but doesn't this sound like another case of locking the barn doors after the goats wandered out and ate all your neighbor's prize roses?

In related news Scott Stern, the CEO of Lenders One made one of the biggest Freudian slips of the year when he said: "As long as the housing bubble doesn't burst, home equity lines should remain strong and remain safe and there should be no serious problem."

Lenders One is a St. Louis-based cooperative of 60 mortgage companies that originate home-equity lines, including some that feature 100 percent loan-to-equity ratios.

As I read it, we have explicit confirmation of an housing bubble by Lenders One. Not to worry.... Things will be OK as long as the bubble doesn't burst. One question: what bubble doesn't burst?

 

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