Preventing dubious lending

Thursday, July 17, 2008 | 2:05 a.m.

The Federal Reserve Board, which oversees the nation’s central bank and sets monetary policy, is one of the most powerful institutions in the world. Its decisions often have immediate effects on global financial markets. The board is so influential that Wall Street traders sit on the edge of their seats even while reading the minutes of board meetings in an attempt to get a clearer read on the Fed’s strategy going forward.

The board doesn’t always act the way traders would like, but consumers on Main Street also have legitimate reasons to be put off by the Fed. That was especially the case when the regulators stood on the sidelines as Las Vegas and other cities across the nation fell into a housing abyss prompted by questionable high-risk mortgage loans.

The result was a record spike in foreclosures that, combined with high oil prices and a credit crunch, pushed our economy into a recession.

The Fed on Monday sought to take corrective action by approving a plan designed to prevent risky mortgage lending practices from recurring. As reported by the Associated Press, elements include preventing lenders from making loans without proof of a borrower’s income, requiring lenders to make sure borrowers can also pay taxes and insurance, and prohibiting lenders from penalizing risky borrowers for paying loans off early.

These are all fine steps but they come too late for many people in Southern Nevada and elsewhere who have lost their homes. It is one thing to be cautious, but the board ignored the warning signs until long after they had become apparent to everyone else.

In the future the Fed must take a swifter and more aggressive approach to correct faulty lending practices and other troublesome aspects of monetary policy that can have a disastrous effect on consumers if left unchecked. This means the board must keep in closer touch with consumers because if not for the well-being of Main Street, there wouldn’t be a Wall Street.