Fed Faulted for Lax Mortgage Regulation Before Financial Crisis

The Federal Reserve failed to forestall the housing bubble or prevent the abusive lending practices that contributed to it, the Financial Crisis Inquiry Commission said in a report, embracing a lesson that legislators have already tried to correct with new laws.

The central bank didn’t “recognize the cataclysmic danger posed by the housing bubble to the financial system and refused to take timely action to constrain its growth,” the report said. It also “failed to meet its statutory obligation to establish and maintain prudent mortgage lending standards and to protect against predatory lending.”