The History of the Subprime Crisis began with Jimmy Carter and a Cool Widget
From the Center for Public Integrity;
The Depository Institutions Deregulation and Monetary Control Act of 1980 was enthusiastically endorsed by then-President Jimmy Carter. The act, passed in a time of high inflation and declining savings, made significant changes to the financial system and included a clause effectively barring states from limiting mortgage interest rates. As the subprime lending industry took off 20 years later, the act allowed lenders to charge 20, 40, even 60 percent interest on mortgages.
The other key piece of legislation was the Alternative Mortgage Transaction Parity Act, passed in 1982. The act made it possible for lenders to offer exotic mortgages, rather than the plain-vanilla 30-year, fixed-rate loan that had been offered for decades.
With the passage of the Parity Act, a slew of new mortgage products was born: adjustable-rate mortgages, mortgages with balloon payments, interest-only mortgages, and so-called option-ARM loans. In the midst of a severe recession, these new financial products were seen as innovative ways to get loans to borrowers who might not qualify for a traditional mortgage. Two decades later, in a time of free-flowing credit, the alternative mortgages became all too common.
The Parity Act also allowed federal regulators at the Office of Thrift Supervision and the Office of the Comptroller of the Currency to set guidelines for the lenders they regulate, preempting state banking laws. In the late 1990s, lenders began using the law to circumvent state bans on mortgage prepayment penalties and other consumer protections.
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Note to President Obama: There might be some names in this report that you could reach out to as you seek to regulate the Financial Industry, that are qualified, and are not the Financial Industry.