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Originally published Monday, January 14, 2013 at 4:00 PM

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Editorial: Mortgage rules — back to basics

New federal mortgage regulations take the industry back to Banking 101, as fines, fees and settlements were announced with major lenders.

Seattle Times Editorial

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Yes, plenty of blame to go around. So let's start with the feds and CRA back in the... MORE
Lots of blame to go around on this one but the tip of the spear was the government (Bar... MORE
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NEW lending rules announced by the Consumer Financial Protection Bureau will require potential borrowers to document financial information, which lenders must verify.

Whoa, what a concept. Talk about the feds cracking down on industry abuses.

Wait there is more. To qualify for a mortgage, consumers must have enough income and assets to repay the loan, and lenders must determine that includes both principal and interest over the long term, not a discounted introductory period.

These remedial rules and others issued by the new federal bureau are sobering reminders of how far standards eroded for major national lenders. Their multibillion-dollar settlements with federal agencies and related lawsuits were making headlines as the rules were unveiled.

Millions of Americans suffering through the worst financial downturn since the Great Depression learned they were set up to fail by lenders who saw the opportunity to make money regardless.

Big banks and Wall Street made money bundling loans and selling them as securities. A volume business needed mortgage fodder. Besides, dicey loans would yield property that could be resold, plus all the late fees and charges.

Borrowers discovered the depth of the hustle in the foreclosure process. Already whacked by plunging housing prices, reset interest rates, and layoffs, unemployment and pay cuts, they got hit with sham foreclosure proceedings. Banks favored foreclosure over modifying loans for struggling borrowers.

Banks had scant records, no process for reviewing individual mortgages or formal signing procedures and verification of signatures. The infamous robo-signing mortgage factories were all about moving product.

As banks pay out billions, it turns out to be peanuts against profits made and their expected growth. A relative handful of wronged borrowers will receive any help, reconsideration or a share of the penalties.

The only ray of sunlight was the record of community banks and credit unions that survived with professional standards and behavior.

Federal efforts to provide relief earned President Obama no glory. Democrats and Republicans alike were underwhelmed by the administration’s Home Affordable Refinance Program.

Recovery from subprime behavior is grounded in basic mortgage rules. Meanwhile, lenders are paying scant penalties they are likely to deduct as business expenses.

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