Government Plan Would Give Fed More Power

Critics Wonder Whether Homeowners Are Receiving the Help They Need

By DAVID MUIR, LIZ SINTAY AND IMAEYEN IBANGA
ABC NEWS
March 31, 2008

In an effort to better police the market and prevent the current type of mortgage meltdown that has many homeowners teetering on the brink of foreclosure, Treasury Secretary Henry Paulson will unveil a new proposal today that will keep a closer eye on bankers and borrowers.

The 200-page plan is the largest financial regulation overhaul since the Great Depression and would give the Federal Reserve greater power, including more oversight to watch over the kind of deal making that led to the nation's credit crunch.

It also would designate the Fed as a "market stability regulator" and give it the power to examine the books of any financial institution, not just banks, that might pose a threat to the stability of the financial system, according to The Associated Press.

But critics wonder what the government plans to do for consumers facing a credit crisis now, especially since the bailout of Bear Stearns after its colossal collapse.

Some believe federal moves may come too late for those who may need it the most, like Gayle Midaugh.

The Jacksonville, Ark., resident bought her home three years ago, and even though she was told at the time she'd be able to refinance her adjustable rate mortgage long before the rates jumped and never has missed a payment, Midaugh has been unable to refinance.

"I can't get anyone to give me a mortgage," said Midaugh, who recently was laid off. "It's frightening to not know what's going to happen in the next year."

Now Midaugh is preparing to see her mortgage rate jump drastically and can't get out of the increase.

Critics had argued before the current mortgage troubles that lenders were eager to hand out loans without explaining the fine print.

The legal jargon may be difficult for some potential home buyers to understand.

Mortgage papers can read like, "if a default shall have occurred and be continuing, the lender may declare the entire principal amount of the note then unpaid, and the interest accrued thereon to be due and payable immediately, and upon such declaration such principal and interest shall forthwith become and be due and payable, as fully and to the same effect as if the date of such declaration were the date originally specified for the maturity of the unpaid balance of the note."

"In the future when someone goes to get a mortgage they'll be very clear. 'You're paying so much a month and if interest rates change they could rise by so much,' and you'll understand that clearly," said Dean Baker, of the Center for Economic and Policy Research.

The Bush administration now is reportedly considering a plan that would help homeowners who owe more than their home is worth by allowing them to refinance into a more affordable mortgage backed by the government.

Also, the mortgage lenders would have to forgive portions of those loans and one economist said the government is trying to do two things at once.

"One is fight a fire. Help people who have mortgages that can't be refinanced, and prevent the next fire by reorganizing the financial regulatory network, which is enormously complicated and doesn't make any sense anymore," said Wall Street Journal economics editor David Wessel.