Foreclosures of home mortgages are at an all-time high in the United States, and numerous companies are facing severe financial consequences if the credit crunch continues unabated. The issue has gained much attention because it affects so many people and because it affects the very places where people live. The article, "Fed to Crack Down on Shady Lending," examines some of the issues surrounding the current situation.
The "shady lending" practices of the title of the article refers to various practices that lenders have implemented in recent years. These practices include not requiring proof of income from borrowers as well as not requiring that at-risk borrowers put aside funds for payment of taxes and insurance. In addition, there are predatory practices that are also of concern to the Fed, including charging pre-payment penalties to at-risk borrowers who pay off their loans early. This practice in particular is considered onerous since it can make it difficult for borrowers to refinance due to the added cost of the pre-payment penalty ("What is?" 2008).
One of the issues that comes up with the lending practices is how so many different companies have engaged in the same types of practices that are unethical. With different individuals involved, and without collusion between and among lenders, some question arise as to how such practices could have spread industry-wide. One of the reasons that these practices are commonplace in the industry is the "cross-pollination" that occurs among financial institutions and the employees they hire. Individuals who work at one institution move to another institution and take ideas or practices with them. Another reason for the industry-wide practices is competition-if a client cannot get a loan from one institution with stringent requirements, he or she may be able to get a loan from a different institution with less rigoro
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