With as much fanfare as a central bank can muster these days -- and that isn't much even when lowering interest rates -- the Federal Reserve Board earlier this week announced its final rules for home mortgage loans.




While a classic case of closing the barn door after the horse has escaped, trotted down the road, crossed a couple of fields and ended up at the glue factory, the new rules are at least a well-intentioned attempt to avert anouther subprime mortgage disaster.

And on the surface, they sound pretty good.

The rule "prohibits unfair, abusive or deceptive home mortgage lending practices" according to a release from the Fed. Of course, that begs the question of why it has taken a tidal wave of loan delinquencies and foreclosures to make such practices illegal. Nevertheless, it is at least an acknowledgment that such activities do exist.

The rule also establishes advertising standards and requires lenders to disclose some things earlier in the transaction than at closing.

Again, a well-intentioned rule, but one that is not likely to have much of an impact.

Unless the Fed can partner with the U.S. Post Office and any other Federal agency willing to help, it seems unlikely that the fabulous offers of no down payment mortgages and interest-free (for a while at least) loans that continue to find their way into consumer mailboxes will stop anytime soon.

In the final rule -- which for those of a technical bent amends Regulation Z of the Truth in Lending Act and was adopted under the Home Ownership and Equity Protection Act -- was explained by Fed Chairman Ben Bernanke as intended to "protect consumers from unfair or deceptive acts and practices in mortgage lending" while making sure credit is available to qualified borrowers.

Fed Gov. Randall Kroszner waxed almost poetic about the new rule, saying the changes "have made for better rules that will go far in protecting consumers from unfair practices and restoring confidence in our mortgage system."

But for all these good intentions -- and knowing full well what road is paved with same -- the new Fed rules have missed an important component.

While they will surely protect consumers from unscrupulous lenders and scam artists, who or what is going to protect consumers from themselves?

There is no doubt that many consumers now facing delinquencies or foreclosures signed loan papers after being misled or misinformed about the terms of the mortgage loans. And others doubtlessly were assured that the market would remain "hot" and their investment in a home today would come back to them in spades in the coming months.

But there were also some consumers who went into their mortgage closing knowing full well they couldn't afford the monthly payment once the interest rate reset or once the "interest only" part of their loan deal ended.

Spurred on by the example of friends and neighbors and inundated with offers of "free" and easy credit, many Americans happily signed on the bottom line with little thought to the deeper implications of credit debt.

It is surprising that the Fed rules don't even touch on financial literacy issues, a subject Bernanke and his pals have made an important focus.




Yet it is the idea of financial literacy -- and its cousin financial responsibility -- that is at the heart of the subprime mortgage meltdown.

And any efforts to ameliorate the impact on financial markets or increase regulatory oversight on lenders will be less effective if more attention isn't paid to the state of financial literacy.

It's not enough anymore to be able to balance your checkbook and make change. And for all of those formerly bored high school students wondering why they had to study math and what possible purpose it could serve in the "real world," those particular chickens seem to be coming home to roost. At least as long as they have a perch to roost on.