Will a Predatory Lending Bill Fix the Problem?

The big news this week in the mortgage industry is that a bill has been introduced in the House of Representatives that is meant to curb predatory lending practices. This bill is supposed to force mortgage lenders to do more to ensure that their borrowers can, in fact, pay back their home loans. MarketWatch reports on what the predatory lending bill is all about:

The bill creates a national standard for originating mortgages that will cover every mortgage originator, Frank said, including what he called a "common sense" approach to writing loans.

"People should not be loaned money beyond what they can be expected to pay back," Frank told reporters on a conference call Monday morning. The bill calls for states to adopt rules that would cover originators and contains a fallback federal law if states don't come through.

While this is admirable in terms of holding the mortgage industry responsible for some of its predatory lending practices, the bill does not address one of the biggest issues: the general financiall illiteracy of Americans. Because of the poor level of financial education in this country, many Americans find themselves easy prey for predatory lenders. And the current attitude of "It's someone else's fault I don't have enough money is also a problem." Yes, there are definite inequities in our system. And there are situations in which one finds oneself in a difficult financial situation through no fault of their own. But that still begs for increased financial education. Once we give Americans the tools to own up to their financial responsibilty, and provide proper education in financial matters, then we will be able to truly end this mess.