Posted on 11/02/2014 1:27:31 PM PST by reaganaut1
WASHINGTON — SEVEN years after the housing bubble burst, federal regulators backed away this month from the tougher mortgage-underwriting standards that the Dodd-Frank Act of 2010 had directed them to develop. New standards were supposed to raise the quality of the “prime” mortgages that get packaged and sold to investors; instead, they will have the opposite effect.
Responding to the law, federal regulators proposed tough new standards in 2011, but after bipartisan outcries from Congress and fierce lobbying by interested parties, including community activists, the Obama administration and the real estate and banking industries — all eager to increase home sales — the standards have been watered down. The regulators had wanted a down payment of 20 percent, a good credit record and a maximum debt-to-income ratio of 36 percent. But under pressure, they dropped the down payment and good-credit requirements and agreed to a debt-to-income limit as high as 43 percent.
The regulators believe that lower underwriting standards promote homeownership and make mortgages and homes more affordable. The facts, however, show that the opposite is true.
In the late ’80s and early ’90s, down payments were 10 to 20 percent. The homeownership rate was 64 percent — about where it is now — and nearly 90 percent of housing markets were considered affordable (that is, home prices were no more than three times family income). By 2011 only 50 percent were considered affordable, and by 2014, just 36 percent — even though down payments as low as 5 percent are now common.
(Excerpt) Read more at nytimes.com ...
If we’re going to drop loan standards, why not give housing away for free?
That would solve the affordability crisis in a jiffy.
***By 2011 only 50 percent were considered affordable, and by 2014, just 36 percent — even though down payments as low as 5 percent are now common.***
Hey Peter, guess who was (and still is) running the show during that time.
The “collapse” in housing was caused long before when the decision was made to:
1) lend to people who could not (or would not) repay;
2) to set policy at Fanny and Freddie where they would buy loans with insufficient margin between what the home was worth and the loan amount so that should housing in a locale suffer from a decline in value the (”Loan to value” ratio — LTV) that the homeowner too easily would have negative equity;
3) to force foreclosure too quickly on loans that went upside down even when the homeowner was servicing the loan and indicated a willingness to continue doing so;
4) to allow people to walk away from their loans too easily.
All of these factors, every single one of them, were due to political intrusion into the loan business. This was all enabled by a pliant Federal Reserve whose management was willing to finance the whole thing.
Blaming the banks or Wall Street for the housing debacle is like blaming a tall building for murder when the victim gets taken to the roof and pushed off. All the greed and all the taxpayer-funded bonus fraud took place *after* government policy initiatives set the groundwork. Indeed Fanny, Freddy, the Office of Thrift Supervision, the Treasury Department, the Office of Civil Rights Enforcement and the Federal Reserve all had to enlist the mortgage originators, loan processors to do their loan origination and processing. If the loan packagers hadn’t existed, the government would have had to set up their own offices to move the paper.
Don’t forget that at its nadir, loans were being originated where the applicant had no income, no assets and no job. Banks were forced by Treasury to subcontract origination in urban areas to community activist groups such as the fraud-riddled ACORN. You will recall them.
see for example:
Housing Bubble, Financial Crisis – What Happened, Who is Responsible
...
n 1995, the Clinton Administration changed the law governing GSEs’ mission — the Community Reinvestment Act (CRA) — to encourage more lending in poor neighborhoods. Previously, the CRA directed government to monitor banks’ lending practices to make sure they did not violate fair lending rules in poor neighborhoods. With the 1995 change, the government published each bank’s lending activity and started giving bank ratings based primarily upon the amount of lending it performed in poor neighborhoods. These changes empowered community organizations, such as ACORN, to pressure banks to increase lending activities in poorer neighborhoods — which involved reducing mortgage loan standards — or face backlash from those organizations’ private and political associates. For instance, if Chase made 100 mortgages in a poor Chicago district, and Countrywide 150, the government would likely give Chase a lower CRA rating, and community organizers could pressure politicians to make it more difficult for Chase to get licensed to do full ranges of business in new areas of the country. Low CRA ratings could also disadvantage Chase with regard to government lending programs and make it more difficult for Chase to participate in mergers and acquisitions.
Through Fannie Mae, the government controlled banks’ mortgage lending activity rates. As long as Fannie was willing to buy these mortgages, banks had no problem lowering their standards if necessary, making the loans and selling them off to Fannie Mae...
http://tjhancock.wordpress.com/housing-bubble-financial-crisis-detailed-comprehensive-assessment/
If they can barely afford their rent, what makes the banks think they can afford a mortgage?
The banks deserve the blame.
No one forced them to create subprime loans.
But if they want to take that risk and go belly-up, its called capitalism.
After all, if they get too greedy, they should not be surprised when they have to write off loans that can’t be repaid.
The housing bubble was caused by several factors:
1) When Trea Sec Rubin destroyed the Mexican peso it sent the maquiladors to Asia and massive numbers of Mexicans (legal and illegal) to the US. These immigrants started in low paying jobs but soon had good paying jobs and bought houses. They were the natural increase in supply under the law of supply and demand.
2) Due to liar loan opportunities, realtors/mortgage brokers on commission encouraged unqualified buyers to lie on their applications and to buy houses they could not afford.
3) Speculators attended a weekend cheerleading event with Donald Trump&Co and bought properties they intended to flip.
#2 & 3 were artificial increases in demand. But they also increased demand and thus prices.
#2 & 3 had every wishful thinkers to believe that housing prices would continue to rise and they could flip for a bigger house, which in fact, many of them did. The income tax laws stated if they sold at the increased price and pocketed the profit, they had to pay tax on it. But if they “re-invested” it in a more expensive property they could avoid the taxes.
As anti-illegal rhetoric increased the constant increase in the natural growth of the market from immigrants disappeared. In most cases, the buyer was a legal immigrant. But the depended on “cousins” living in the extra bedroom, garage or basement to help with the mortgage payment. Money does not like uncertainty. It did not like the uncertainty of future immigration law.
With the natural increase in demand disappearing, the speculators were caught short (or maybe long) on their investment. They saw no reason to continue to pay on a mortgage for a house that was 50% or 60% underwater.
Even if you believe in the mission of Fannie/Freddie, parking xClinton staff who were not competent for those jobs was not a good way to achieve the Fannie/Freddie mission.
Of Course we could mention Freinds of Angelo like Chris Dodd. We could mention gamblers hoping to turn a quick buck and not get caught when the market turned. We could mention the selective bailout of friends of GoldmanSachs but not the bailout of enemies of GoldmanSachs. We could mention how the bailout was ill conceived. If one really believed in bailouts and propping everything up there was a much more logical way to do it than the way it was done. But all these also mentions did not cause the problem.
Now, how do we learn from history? And when the “next war” occurs, will we try to fight it with the tactics that should have been used on the “last war”?
If there is another liquidity crisis, we’re headed for more deflation, only on a much vaster scale than in 2008.
Should be fun.
I’ve not heard a good explanation of why the fed can’t print themselves out of deflation - at least in terms of the dollar.
That’s exactly what they’ve been doing since 2008.
Obama promised to fix it.
I'm no fan of Obama, but there's nothing any U.S. president can do to "fix" the banking/housing problem on his own.
The situation of lax loan lending and overglut of housing that led to the economy freezing up in the first place.
No President can do anything about the markets or should - but keep rules in place to prevent the market from going haywire.
If they give houses away just think of how high the ownership rate will go.
Just what I wrote.
If affordability is the real issue, just give away housing for free.
The subprime loan market should not exist in the first place.
If you are a homeowner in your 50s or 60s and you're looking to downsize by selling your large suburban home now that your kids are all grown, do you even care if the home you bought years ago for $120,000 now has a "market value" of $800,000 only because of subprime mortgages and artificially low interest rates?
And how many people have the income to pay for that $800,000 home?
This is the worst kind of mix of bad public policy and what should be a free market.
In a free society, we still need to regulate the market to ensure it runs smoothly and to protect every one’s interests.
In the real world, a truly libertarian society is impossible.
If you're the one selling the home then you really don't give a sh!t, do you?
P.S. This is why nearly every elected official in this country is hell-bent on establishing an open borders policy under the law. Our entire economy is built on the delusion that the home in question is worth $800,000 today (and maybe $1.2 million a few years from now) -- even if 35 Mexicans working off the books are the only ones who can afford it.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.