Do you think this will help get the problem under control? Complete story at the site.

Fed adopts plan to curb shady mortgage practices
Monday July 14, 11:19 am ET
By Jeannine Aversa, AP Economics Writer
Federal Reserve gives home buyers more protection against shady lending practices

Fed adopts plan to curb shady mortgage practices: Financial News - Yahoo! Finance

WASHINGTON (AP) -- The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.

Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers -- people with tarnished credit histories or low incomes.

In that regard, the plan would:

-- bar lenders from making loans without proof of a borrower's income.

-- require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.

-- restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.

-- prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change -- sought by consumer advocates -- from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.

I think that this is a good start speaking from a purely ethical and humanitarian point of view. Speaking in support of freedom and capitalism I am concerned because the creditors and borrowers freedoms are limited and this impedes the capitalist system where risk is on the shoulders of the persons making the deal.

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Yes, but too much freedom for creditors and borrowers results in speculative practices. With restrictions it can be insured that borrowers don't overextend themselves.

A short follow up of the action in the beginning of this thread.

FBI mortgage probe expands to 21 firms from 19 33 minutes ago

FBI mortgage probe expands to 21 firms from 19 - Yahoo! News

WASHINGTON (Reuters) - The FBI's investigation into potential corporate fraud in the U.S. home mortgage industry now encompasses 21 companies, up from 19 reported in April, a bureau spokesman said on Wednesday.

"It's up to 21 now," FBI spokesman Jason Pack said. He had no further details on the expansion. Bureau officials have regularly said they expect the number of corporate and individual mortgage fraud cases to grow amid a crisis in the U.S. home-lending industry.

The bureau has publicly acknowledged only one company -- Doral Financial Corp, as involved. The largest U.S. mortgage lender, Countrywide, also is under FBI investigation, authorities have said, although the FBI has declined to comment and Countrywide said it was unaware of any investigation.

When the FBI disclosed its industry investigation, major investment banks Goldman Sachs, Morgan Stanley and Bear Stearns Cos each said the government had asked them for information, but there was no confirmation of any FBI role. Beazer Homes said last year it had received a federal grand jury subpoena related to its mortgage business.

Pack also said he was unaware of any new FBI initiative to investigate potential stock manipulation in major financial firms, including housing finance giants Fannie Mae and Freddie Mac .

U.S. securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in such firms.

(Reporting by Randall Mikkelsen)