Fed Gov in Cleveland: Consumer Protections Needed in Mortgage Industry

Wednesday, June 10, 2009
Topics: Economy
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Federal Reserve Governor Elizabeth Duke is in Cleveland today and told a packed auditorium that borrowers won't regain trust in the financial system without some additional legal protections. As part of our continuing coverage of Facing The Mortgage Crisis, ideastream®'s Mhari Saito reports.

For the crowd of bankers, economists, academics and loan counselors, Federal Reserve Governor Elizabeth Duke remembered her days at a community bank in Virginia. Then, she said, the bank kept it’s mortgages on its balance sheet, so her company’s success was directly related to how well a borrower could repay those loans. That’s a long way from the system of mortage securitization that led to the foreclosure crisis, where brokers, lenders and investment banks were clearly motivated by fees they could collect by selling off risky loans.

Elizabeth Duke: While I don’t necessarily believe we need to return to a time when all loans are held on balance sheet, I do believe we need a system of balanced incentives for the longer-term prosperity of all.

Duke said consumers will only regain trust in the financial system if there are enough protections in place to let borrowers believe they will be treated fairly. However she also said overly restrictive policies could limit credit and future economic growth. 

More In This Series...

This feature is part of the series Mortgage Meltdown.