BOND - The NAACP is suing.

Federal regulators and lawmakers have yet to show signs of seriously spanking the mortgage banks behind the subprime lending fiasco, so another grassroots organization has sued 14 of the country's biggest lenders for "institutionalized systemic racism" against its membership. Earlier this month, the NAACP filed a first-of-its-kind lawsuit in Los Angeles federal court, citing study after study showing blacks receiving higher-interest, even predatory, subprime loans much more often than their white counterparts.

Included as defendants are Ameriquest Mortgage Co. (one of the largest subprime lenders in Cleveland), Citigroup Inc., HSBC Finance Corp., Washington Mutual Inc., and Bear Stearns Residential Mortgage Corp. (a subsidiary, started by the investment bank in 2005 outside federal regulatory purview, that set up brokers to issue home loans directly to consumers).

Unlike the claim brought by Cleveland's Housing Advocates Inc. to fair housing authorities in April, which argues that the group's mission and resources are stymied by lenders' discriminatory practices and seeks monetary damages, the NAACP is using the courts to make sure its members' civil rights are upheld.

The NAACP's lawsuit invokes violations of the Fair Housing Act, the Equal Credit Opportunity Act and the Civil Rights Act, all toward getting a court order that bars lenders from predatory lending practices, and forces them to stick to fair housing and credit laws.

The suit could expose even more horror stories of deception, pressure tactics and punitive loan terms.

"We are asking our members and all African-American borrowers who bought or refinanced a home in the last five years to come forward and tell us their stories or at least re-examine their mortgages," said NAACP National Board of Directors Chairman Julian Bond in a statement. "They can help us correct these egregious, demoralizing practices that too often turn the so-called American dream of homeownership into a nightmare."

The complaint is available online at NAACP.org.

And this is only the beginning of the legal mess, it seems, especially as spurned investors jump in, targeting the credit rating firms who advised them.

Two weeks after the rating agency Moody's downgraded $5 billion worth of subprime mortgage bonds from A-plus-plus to junk, one investor sued an executive of Moody's for allegedly making "false and misleading statements" about risks. Raphael Nach, in a federal class-action complaint filed in late June, accused Moody's executive vice president, Linda Huber, of telling investors they could continue to buy subprime mortgage-backed stocks even though she knew they were going belly up.

BERNANKE - Admits it's time to act.

This lawsuit could be just the first of many. According to The Business Times Singapore, bond market analysts predict that more legal actions are on the way for Moody's, and the other two ratings agencies, Standard & Poor's and Fitch Ratings.

Wall Street is reacting because far too many borrowers aren't making their monthly payments. And in many cases that's because their mortgages included "exploding ARMS," - ARMS standing for adjustable rate mortgages - with interest rates that start off low but later skyrocket, sometimes beyond 20 percent within two years. It's terms like this that many borrowers weren't told about, and definitely couldn't pay. As these predatory ARMs now readjust to their higher interest rates, they set off the domino effect of record defaults and foreclosures.

Bear Stearns Cos., one of the largest investment banking and securities trading firms in the world, told investors last week that the subprime market debacle was behind the implosion of its two premier hedge funds. In a letter to clients, Bear Stearns said it was all due to "unprecedented declines in valuations of a number of highly rated securities." One, once worth $638 million, had completely evaporated. The other had only about $83 million left, down from $925 million earlier this year.

That's way beyond acceptable losses, and investors want their money back. The Business Times Singapore reported this week that a few Bear Stearns' investors have already contacted lawyers.

One could argue that all this could have been avoided had federal regulators done their job sooner. Chairman of the Federal Reserve Board and champion of the free market's self-correcting forces, Ben Bernanke, also the man with the most authority to enforce banking-related consumer protection laws, appeared before Congress last week and offered what appeared to be a long-overdue mea culpa.

Bernanke finally acquiesced that not only is the economy dragging, with defaults and foreclosures destroying people and communities, but that it's time for the Fed to take action against the free-wheeling market forces causing this destruction.

Last year, the Fed held hearings on the issue as part of a review of its truth-in-lending rules for mortgage loans. Changes in disclosure requirements are needed, Bernanke concluded. Just don't expect sweeping change anytime soon.

But what homeowners drowning in debt can expect to see by the end of the year, Bernanke promised, are rule changes on misleading loan ads and flyers. And the Fed has already made one advance: Lenders must better explain to borrowers the riskier features of adjustable-rate mortgages, like exploding interest rates.

Bernanke said the Fed will also exercise its authority under the Home Ownership and Equity Protection Act, which enables the Fed to specifically address unfair and deceptive practices. Expect to see new rules by year's end on unscrupulous practices like pre-payment penalties, no-document loans, and neglecting to verify income to evaluate a borrower's ability to pay.

Another review, that of the mortgage lending subsidiaries owned by banks certified under the Fed - long sought by fair housing advocates - will start later this year.

SCHUMER - Wants stricter regulations.

One lawmaker who heard Bernanke's congressional testimony wasn't satisfied. Sen. Charles Schumer (D-NY) chairs the US Senate's Housing Subcommittee and Joint Economic Committee. Monitoring non-bank mortgage brokers and lenders was a welcome change, Schumer said in a reaction statement, but stricter federal legislation is also needed "to prevent this mess from happening again."

In May, Schumer, along with Ohio Sen. Sherrod Brown and Pennsylvania Democrat Sen. Robert Casey, proposed the Borrower's Protection Act of 2007. The senators want laws that set stringent standards for mortgage loan originators and their fiduciary duties, and create clear lines of liability.

To this effect, Schumer and Brown were scheduled to participate on July 25 in a Joint Economic Committee hearing on the effects of the subprime crisis

in Cleveland, and possible federal policy solutions. The hearing takes place at

10 a.m. in Room 216 of the Hart Senate Office Building. You can watch the proceedings at jec.senate.gov/hearings.htm#072507.