By Moe Bedard
Under the cover of the cramdown bill another important piece of legislation was passed today, a bill that protects lenders and servicers from lawsuits if they modify or refinance their client’s loans. This bill, which passed with an overwhelming majority in the senate (91-5), is referred to as the safe harbor bill. Essentially, this bill will shield lenders from predatory lending lawsuits if they offer loan modifications and refinance programs that meet government guidelines.
The argument that made this bill fly through the senate is rather simple to articulate: If banks are offered legal protection they will be more willing to lend money to the public. This sounds very nice but what about the American public that was victimized by predatory lending? What are the concessions given to Main Street?
Here’s what the American citizen gets in return: the promise that banks will continue to unscrupulously lend in the future. If a child does something bad, a parent will discipline that child to modify their behavior. Our government is acting like a drug addicted, non-caring parent when it comes to bank regulation. Instead of disciplining banks appropriately, they shield banks from harm even when they know the banks were in the wrong. Even worse, the government is monetarily incentivizing the unruly banking system to follow their guidelines.
We should expect that as the banking system in America matures, it will grow in to a rather uncaring, self centered, holier than thou enterprise. And why shouldn’t it? The structures that serve as role models and regulators for the banks are encouraging the illegal behavior we have witnessed and, as I expect, will continue to witness in the future.
From Finance and Commerce
The U.S. Senate approved so-called safe-harbor mortgage legislation aimed at making it easier for struggling homeowners to refinance and shielding loan-servicing companies from lawsuits.
The legislation, which passed 91-5, protects servicers from mortgage-bond investor lawsuits when they modify loans under government anti-foreclosure initiatives. The bill also revamps the Hope for Homeowners refinance program, raises the Federal Deposit Insurance Corp.’s coverage on individual bank accounts, and strengthens terms of the Troubled Asset Relief Program.