Heritage: New mortgage rules will unleash ‘predatory regulators’

New mortgage regulations set to take effect next month are based on false pretenses and would give the government undue control over the home loan industry, a white paper from the conservative Heritage Foundation contends.


The sweeping new rules, unveiled in January by the Consumer Financial Protection Bureau, are a core pillar of the Dodd-Frank financial reform law. They are designed to tamp down on risky lending practices blamed for helping to cause the 2008 economic crisis and subsequent housing meltdown.

Simply put, the rules, which kick in Jan. 10, are designed to ensure borrowers have the wherewithal to pay back their loans.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” Bureau Director Richard Cordray said upon issuing the rules almost a year ago.

But Diane Katz, a research fellow for regulatory policy at Heritage, argues that the main cause of the mortgage crisis was not unscrupulous lenders or naïve borrowers, as the government’s response would suggest.

“While many homeowners did incur terrible losses, most were not victims of predatory lending or fraud,” Katz writes. “The hard truth is that most of them bet on rising home values and lost. They were not imbeciles.”

Katz concedes that reckless lending played a role in the crisis, but she contends that lenders and borrowers alike were “responding rationally to incentives created by an array of deeply flawed government policies.”

Among them, she writes, were artificially low interest rates “contrived” by the Federal Reserve, over-subsidization of risky loans by government-backed giants Fannie Mae and Freddie Mac and federal lending quotas for low-income borrowers.

“However, this new regime is based on faulty notions about the causes of the crash,” Katz argues. “Consequently, the government will be unnecessarily limiting financing options and access to credit, and thus further expanding control over Americans’ lives.”

The abstract, which warns of "predatory regulators" under the new rules, can be read in full here.