FDIC Knew About Mortgage Problems in 2002

FDIC's very own Division of Insurance and Research was questioning mortgage lending practices and models back in 2002.

Between 2001 and 2003, [Division of Insurance and Research] DIR risk assessments and quarterly banking profiles identified concerns about a number of issues, including:

• consumers’ ever-increasing debt load, the expansion of adjustable rate mortgages, and a potential housing bubble;
• subprime and high loan-to-value (HLTV) lending as a risk in the event that the United States economy suffered a significant recession; and
• pricing and modeling charge-off risk with respect to the originate-to-sell model of the mortgage business.

Further,

In May 2003, DIR reported that there was a concern about the extent to which lenders’ scoring models under-predicted losses during the 2001 recession. DIR noted that many subprime lenders experienced loss rates higher than their models predicted and that some consumer lending business models had been found to be inadequate, including those that relied on the securitization market for funding and were, therefore, sensitive to market pricing changes.

So if FDIC kinda-sorta knew that there were time-bombs in the lending business in 2002/2003, what prevented them from DOING something about it?

HT: CalcRisk