After taking steps this weekend to prop up the two biggest mortgage firms -- Freddie Mac and Fanny Mae -- the Fed imposed new rules aimed at cracking down on abusive lenders.
This won't help home buyers already facing foreclosure, but it should help to set new standards to prevent another mortgage meltdown. Both lenders and borrowers will face new restrictions.
The crackdown is aimed at preventing borrowers from getting loans they can't afford. The Federal Reserve will require lenders to verify income, to arrange for borrowers to set aside funds to pay taxes and insurance and will restrict prepayment penalties in the first years of the loan.
John Asdourian is a director of the San Francisco Association of Realtors. He welcomes the new rules.
"It will be more hurdles. However, in the long run, I think it will go a long way in adding more confidence to the marketplace."
When Dorothy Hicks took out a subprime loan on her Oakland home, she says the loan officer exaggerated her income in order to qualify -- a practice that will be barred.
"What they were doing was increasing my income. In order for the banks to look at it and say, 'gee, she can have the loan because she qualifies for the loan.'"
Larry Hynson is a housing policy analyst at ACORN, the nation's largest community advocacy groups, with an office in Oakland. He points out the new rules come too late for thousands of families facing foreclosure because they couldn't make the payments.
"This, after so many people have lost their homes, there's some people and families who are homeless now. This should have happened in 2002, 2003 at the latest."
While the Fed is trying to prevent future problems, delinquent loans have already hurt some banks. It caused the Fed to step in to help Freddie Mac and Fannie Mae, which buy loans from banks, and there is concern more banks are in trouble.
"It's very difficult to control fear when a certain percentage of your deposits are insured but then the rest of the deposits are up in the air. Who would blame someone for queuing up first thing in the morning to protect their assets?" says John Fisher from the USF school of Business.
The new Federal Reserve home loan rules will take effect in October of next year. The Fed's action will be a focal point when Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson appear before the Senate Banking Committee in Washington on Tuesday.
