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 ...
nobody’s ideal world would work. always some give.
There is plenty of loan regulation without sub-pike and worse lending.
I was under the impression that Carter signed the CRA, Clinton strong-armed lenders to take it further and then we had the melt down. Bush, apparently tried to get a handle on it, but was confronted by Frank and Dodd and he backed off unfortunately.
I doubt there's much to be done money-wise short of a Constitutional amendment (a) stripping the congress of the power to regulate the dollar, (b) fixing the value of the dollar in terms of a physical material (e.g. Gold), and (c) restricting the ability of Congress to incur debt.
The Norwegian villagers deserve the blame. No one forced them to buy securitized loans based on mortgages that Americans could obviously not afford during an obvious bubble.
http://www.theguardian.com/business/2008/jun/30/subprimecrisis.creditcrunch
At the heart of the crisis is the decision by Narvik to invest £24m of its public funds into securities put together by US bank Citigroup. These products were marketed and sold via a Norwegian brokerage firm, Terra Securities. Narvik's leaders say they did not know these products were high-risk, with most thinking that they were investing in domestic companies, rather than outside Norway, as was the case.
Same as it ever was; greed makes people stupid.
Every “insurance” company buying these so called MBS, now know they have Extortion-Care as a backstop, leverage at will. They are in reality ECS (Extortion-Care Securities).
As I said before, the so called “bailout” never happened. The backstopping, did.
Business aren’t hiring because they are all selfish and keeping all their money for furs and vacations.
Banks are not lending because they are greedy and sitting on their money.
If they don’t lend to the poor they are “redlining”. If they do lend they are “predatory loans”.
I just let you look into a leftist’s head. You’re welcome.
Indeed the government provided incentive and virtually forced banks to make loans to unqualified individuals. The legislation doing that was the Community Reinvestment Act. The ramifications went on from there.
Every night, a friend of mine in banking would tell me about this situation, practically ripping his shirt off, railing about what was happening.
Sorry, but the policy implementation behind the Community Reinvestment Act did in fact cause banks to find every way possible to originate loans that necessitated upstream sales of packaged loans to non-governmental buyers. I did extensive research for a book that had a section on the subject. Not that the banks and Wall Street were faultless, but as I previously wrote, they were reacting to the environment that was imposed by law and the regulators.
Not a single person I have interacted on this topic who blames the banks ever mentions the role of the CRA or the Federal Reserve. The just want to show their hatred for the banksters.
World famous economist John Taylor (of Taylor Rule fame) laid the blame on the Federal Reserve. I cannot disagree, for what the CRA forced banks to do, the Fed gladly made the money available. While the CRA was a pure political tool, the Fed is supposed to know better and is supposed to be completely independent from political pressure.
see:
Ultra-low Fed rates stoked housing boom: Taylor
BY ALISTER BULL
...
“A higher federal funds path would have avoided much of the housing boom,” Taylor said, drawing on a model he designed to simulate housing activity if the Fed had raised rates instead of aggressively easing borrowing costs....
http://www.reuters.com/article/2007/09/01/us-usa-economy-taylor-idUSN0144589820070901
I was in the business at the during the bubble buildup as well as the time of the crash and saw everything you mentioned first hand.
Lenders and mortgage brokers had appraisers eating out of their hands. If the appraiser didn't play ball, he was out.
The lenders didn't give a crap, as long as the docs got by the underwriters (who were really coaches on how to push bad paper)they were good. The mortgages went off his desk and out the door the next day to whatever buyers were scooping them up.
I saw nurses and blue collar guys trying to become real estate tycoons, and they were getting loans with very little on the front end. Of course when they got caught holding the bag, they had very little to lose - except for a bad credit rating for a couple of years.
Some got "smart" by getting a second mortgage or HELOC and buying a Mercedes or something else before they walked away. It was really absurd.
I read about this one house during this time that changed "flipping" owners and mortgages numerous times. Well, after the crash, it finally wound up with a serious owner/buyer who paid cash. He went inside an found the skeleton of a dead guy, with his dead dog laying next to him. He had been there for like 2 years.
None of the buyers or financers (or APPRAISERS) over that 2 year period had bothered to actually enter the house and see that an earlier owner - and his poor dog - had died there... and rotted away.
“No one forced them to create subprime loans. But if they want to take that risk and go belly-up, its called capitalism.”
The government forced them to make bad loans (to eliminate racism in lending), then accused them of taking advantage of minorities who weren’t finance-savvy...
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