"Officials want banks to have large stockpiles of capital so that they will be able to continue lending even if the economy worsens." Is this really the intent of the Basel Committee? To the degree the outlook for an economy worsens, borrowing/lending will increasingly contract as investment is based on forward-looking conditions and lending is based on counter-party risk. If the market hasn't already taught us this lesson, then it's because the market was not able to fully operate with an obstacle course of bad bailout practices.
(click on heading tfor link)
Monday, September 13, 2010
Thursday, September 9, 2010
Subprime 2.0 Is Coming Soon to a Suburb Near You: Edward Pinto
Commentary by Edward Pinto
(Edward Pinto, a mortgage-finance consultant, was executive vice president and chief credit officer at Fannie Mae from 1987 to 1989. The opinions expressed are his own.)
Sept. 8 (Bloomberg) -- On the second anniversary of the bailouts of Fannie Mae and Freddie Mac, it’s now obvious that weak lending standards, serving the political interest of affordable housing for all, were the main reason for the nation’s mortgage meltdown.
But the government just can’t permit lending to anyone and everyone; it must insist on prudent judgment about who will repay and who will default. Not only will borrowers who lack a down payment, steady income, employment and a good credit history probably get into trouble -- surprise! -- but too much irresponsible lending also creates artificial demand for houses, driving prices into the stratosphere and, as we have just experienced, puts all homeowners at risk.
The same mistake occurred in 1929, when any investor could buy stocks on margin with as little as 10 percent down. Small wonder that after the crash the U.S. government instituted a margin requirement of 50 percent down.
Congress should apply the same principle to housing purchases, increasing the amount a buyer must put down and other safeguards to assure prudent lending. Congress refuses to do this. Why? Giving citizens cheap, easy housing is a great way to win votes, no matter what horrific repercussions ensue.
Who’s Following Whom?
Consider the prevailing narrative that holds a greed-driven private sector responsible for the 2008 financial crisis. A secondary narrative points to a greed-driven Fannie Mae and Freddie Mac abandoning their credit standards in an effort to follow the lead of Wall Street.
If these explanations fail to convince, a third blames a combination of deregulation and insufficient regulation, again driven by greed, as rulemakers were asleep at their posts.
What is missing is the central role played by an affordable housing policy built upon the misguided concept of loosened underwriting -- a policy created by Congress and implemented for
15 years by the Department of Housing and Urban Development and banking regulators.
From 1993 onward, regulators worked with weakened lending policies as mandated by Congress. These policies systematically dismantled a housing-finance system based on the common sense principles of adequate down payments, good credit, and an ability to handle the mortgage debt.
No Money Down
Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.
These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout.
Congress and U.S. President Barack Obama’s administration refuse to learn the lesson that is painfully aware to American taxpayers, and they have made it clear that they have no intention of fixing broken underwriting.
Let’s start with the latest pieces of evidence. The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.
‘Prudent Underwriting’
This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.
In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.
Of course, FHFA Director Edward DeMarco notes that Fannie and Freddie aren’t to undertake risky lending to meet these goals. As has already been noted, Congress doesn’t consider low down payments and poor credit as indicative of risky lending.
How convenient.
Return to Subprime
The Federal Housing Administration, in its actuarial study released late last year, projected that it will return to an average FICO credit score of 635 by 2013. This signals the FHA’s intention to return to subprime lending. Once again, Dodd-Frank supports this policy change.
The FHA, the Veterans Affairs Department and the Agriculture Department’s grip on the home-purchase market increases month by month. They now guarantee more than half of all home-purchase loans. However, skin in the game isn’t a requirement. For example, the FHA’s average down payment is just
4 percent. Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.
On Christmas Eve in 2009, the Treasury Department announced new terms to the bailouts of Fannie and Freddie. Starting on Jan. 1, 2013, the terms of the bailout agreement provide for a continuing obligation to provide about $274 billion in capital to Fannie and Freddie. This amount is in addition to the unlimited sums that are available between now and Dec. 31, 2012.
As a result, one or both of these entities can now continue indefinitely as zombie institutions under conservatorship.
As a society, we have to go back to at least 20 percent down, with limited exceptions. Credit histories need to be solid. Documentation has to be iron-clad. Lender capital levels need to be raised.
Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.
(Edward Pinto, a mortgage-finance consultant, was executive vice president and chief credit officer at Fannie Mae from 1987 to 1989. The opinions expressed are his own.)
Sept. 8 (Bloomberg) -- On the second anniversary of the bailouts of Fannie Mae and Freddie Mac, it’s now obvious that weak lending standards, serving the political interest of affordable housing for all, were the main reason for the nation’s mortgage meltdown.
But the government just can’t permit lending to anyone and everyone; it must insist on prudent judgment about who will repay and who will default. Not only will borrowers who lack a down payment, steady income, employment and a good credit history probably get into trouble -- surprise! -- but too much irresponsible lending also creates artificial demand for houses, driving prices into the stratosphere and, as we have just experienced, puts all homeowners at risk.
The same mistake occurred in 1929, when any investor could buy stocks on margin with as little as 10 percent down. Small wonder that after the crash the U.S. government instituted a margin requirement of 50 percent down.
Congress should apply the same principle to housing purchases, increasing the amount a buyer must put down and other safeguards to assure prudent lending. Congress refuses to do this. Why? Giving citizens cheap, easy housing is a great way to win votes, no matter what horrific repercussions ensue.
Who’s Following Whom?
Consider the prevailing narrative that holds a greed-driven private sector responsible for the 2008 financial crisis. A secondary narrative points to a greed-driven Fannie Mae and Freddie Mac abandoning their credit standards in an effort to follow the lead of Wall Street.
If these explanations fail to convince, a third blames a combination of deregulation and insufficient regulation, again driven by greed, as rulemakers were asleep at their posts.
What is missing is the central role played by an affordable housing policy built upon the misguided concept of loosened underwriting -- a policy created by Congress and implemented for
15 years by the Department of Housing and Urban Development and banking regulators.
From 1993 onward, regulators worked with weakened lending policies as mandated by Congress. These policies systematically dismantled a housing-finance system based on the common sense principles of adequate down payments, good credit, and an ability to handle the mortgage debt.
No Money Down
Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.
These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout.
Congress and U.S. President Barack Obama’s administration refuse to learn the lesson that is painfully aware to American taxpayers, and they have made it clear that they have no intention of fixing broken underwriting.
Let’s start with the latest pieces of evidence. The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.
‘Prudent Underwriting’
This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.
In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.
Of course, FHFA Director Edward DeMarco notes that Fannie and Freddie aren’t to undertake risky lending to meet these goals. As has already been noted, Congress doesn’t consider low down payments and poor credit as indicative of risky lending.
How convenient.
Return to Subprime
The Federal Housing Administration, in its actuarial study released late last year, projected that it will return to an average FICO credit score of 635 by 2013. This signals the FHA’s intention to return to subprime lending. Once again, Dodd-Frank supports this policy change.
The FHA, the Veterans Affairs Department and the Agriculture Department’s grip on the home-purchase market increases month by month. They now guarantee more than half of all home-purchase loans. However, skin in the game isn’t a requirement. For example, the FHA’s average down payment is just
4 percent. Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.
On Christmas Eve in 2009, the Treasury Department announced new terms to the bailouts of Fannie and Freddie. Starting on Jan. 1, 2013, the terms of the bailout agreement provide for a continuing obligation to provide about $274 billion in capital to Fannie and Freddie. This amount is in addition to the unlimited sums that are available between now and Dec. 31, 2012.
As a result, one or both of these entities can now continue indefinitely as zombie institutions under conservatorship.
As a society, we have to go back to at least 20 percent down, with limited exceptions. Credit histories need to be solid. Documentation has to be iron-clad. Lender capital levels need to be raised.
Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.
Tuesday, September 7, 2010
Underwater mortgages are the real problem in housing
It doesn't make sense for the U.S. to spend money to prop up the housing market by giving buyers incentives, but that doesn't mean sitting back and letting prices crash would "magically" bring the housing market back to life, as some have suggested, according to The Economist. At the core of the problem are homeowners with underwater mortgages who can't afford to sell at prices buyers are willing to pay. "Driving those prices lower won't change that fact," the magazine notes.
Finally, recognition of the root of the housing problem!
Finally, recognition of the root of the housing problem!
Wednesday, September 1, 2010
Quotable Mark Twain
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. – Mark Twain
Harrisburg, Penn., will skip a municipal bond payment
Harrisburg, the capital of Pennsylvania, is planning to default on a $3.29 million payment for municipal bonds in two weeks. The incident would be the secondlargest
municipal bond default in 2010. Harrisburg's bond insurer is expected to cover the payment, but the situation is expected to fuel investor concern about the municipal bond market.
municipal bond default in 2010. Harrisburg's bond insurer is expected to cover the payment, but the situation is expected to fuel investor concern about the municipal bond market.
Analysis: There's nothing to celebrate in U.S. home-price data
Markets have overlooked a crucial fact in their joy for the latest S&P/Case-Shiller U.S. National Home Price Index, which shows a 4.4% increase for the second quarter, according to The Economist. Because of the way the index is calculated, nearly all transactions that went into the data were concluded before a homebuyers' tax credit expired. The housing market has suffered serious deterioration since, and that is likely to show up in future home-price data, the magazine notes.
The Economist
The Economist
Milton Friedman on spending
Quotable
“ I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.”
Milton Friedman
“ I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible. The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, "How do you hold down government spending?" Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.”
Milton Friedman
Thursday, August 26, 2010
New-home sales are nearly nonexistent in many U.S. cities
Statistics on new-home sales in the U.S. are as troublesome as those for existing homes, according to The Economist. Last month, 25,000 new homes were sold, a 90% drop from nearly 120,000 in July 2005. "When one takes into account that sales aren't
spread evenly around the country -- most are taking place in tighter markets xperiencing job growth -- it becomes clear that in some metropolitan areas housing markets have all but shut down," the magazine notes.
The Economist (click on headig for a link)
spread evenly around the country -- most are taking place in tighter markets xperiencing job growth -- it becomes clear that in some metropolitan areas housing markets have all but shut down," the magazine notes.
The Economist (click on headig for a link)
Wednesday, August 25, 2010
Fewer recently modified mortgages are falling into foreclosure
LIES, Damn Lies and Statistics
Recent mortgage modifications in the U.S. are more successful at keeping borrowers from losing their homes in foreclosure than those completed earlier in the housing crisis, according to a report by the State Foreclosure Prevention Working Group. Homeowners who obtained a mortgage modification in 2009 were nearly 50% less likely to fall 60 days behind on their payments compared with those whose mortgages were modified in 2008, according to the report. Google
Exactly opposite of almost everything I have read. Curious.
Recent mortgage modifications in the U.S. are more successful at keeping borrowers from losing their homes in foreclosure than those completed earlier in the housing crisis, according to a report by the State Foreclosure Prevention Working Group. Homeowners who obtained a mortgage modification in 2009 were nearly 50% less likely to fall 60 days behind on their payments compared with those whose mortgages were modified in 2008, according to the report. Google
Exactly opposite of almost everything I have read. Curious.
Thursday, August 19, 2010
Billions spent on housing tax breaks accomplish little, experts say
The U.S. government spent $230 billion last year to support homeownership but accomplished almost nothing beyond putting money into the pocket of the rich, experts told a conference on housing policy. The rate of homeownership in the U.S.
is about the same as in Canada and less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of homeownership tax breaks. The Urban Institute said tax incentives for U.S. mortgage holders are worth $5,459 a year to people making more than $250,000 but only $91 a year to those earning less than $40,000. USA TODAY
No one working on FNM/FRE is even paying attention to this it seems (click on heading to read the full article)
is about the same as in Canada and less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of homeownership tax breaks. The Urban Institute said tax incentives for U.S. mortgage holders are worth $5,459 a year to people making more than $250,000 but only $91 a year to those earning less than $40,000. USA TODAY
No one working on FNM/FRE is even paying attention to this it seems (click on heading to read the full article)
Fed might no longer have control of the fed-funds rate
Worth thinking about who might be in control when the Fed loses it? Mr. Market? Politicians? Burocrats? Heaven help us!
Benn Steil and Paul Swartz, director of international economics and an analyst, respectively, at the Council on Foreign Relations, explain how the Federal Reserve has sustained "extraordinary lending and monetary policies," as Chairman
Ben Bernanke put it, by reinvesting proceeds from its mortgage-bond portfolio. Eventually, the Fed must exit from such stimulus, with the strategy involving a transformation, Steil and Swartz write. The plan also implies that the central bank will not be able to control any interest rate, including the federal-funds rate.
The Wall Street Journal (click on heading above for full article)
Benn Steil and Paul Swartz, director of international economics and an analyst, respectively, at the Council on Foreign Relations, explain how the Federal Reserve has sustained "extraordinary lending and monetary policies," as Chairman
Ben Bernanke put it, by reinvesting proceeds from its mortgage-bond portfolio. Eventually, the Fed must exit from such stimulus, with the strategy involving a transformation, Steil and Swartz write. The plan also implies that the central bank will not be able to control any interest rate, including the federal-funds rate.
The Wall Street Journal (click on heading above for full article)
Wednesday, August 18, 2010
Maintaining Cofidence in the Dollar is our responsibility
The growth in foreign dollar holdings has placed upon the United States a special responsibility--that of maintaining the dollar as the principal reserve currency of the free world. This required that the dollar be considered by many countries to be as good as gold. It is our responsibility to sustain this confidence. - President John F. Kennedy days after he took office in January, 1961
Tuesday, August 17, 2010
Copper looks good
The outlook for the copper market remains robust with the supply demand roughly balanced this year and moving into deficit in 2011
"Our price forecast for copper is $3.70 for 2011 - at this point we're sticking with it and this price basically suggests that we're going to have considerable supply deficits where we're likely looking at some 280,000 tonnes deficit in 2011 - and on average, a balanced market in 2010 that could very easily move into deficit territory as we move closer to the conclusion of the year. So we're quite optimistic for copper with prices up $3.70 considerably beyond the cost curve, mainly because of the very tight and tightening supply-demand conditions."
This is a quote from Bart Melek: Commodity strategist, BMO Capital Markets and the full interview can be read, and listened to, by clicking on the heading above.
"Our price forecast for copper is $3.70 for 2011 - at this point we're sticking with it and this price basically suggests that we're going to have considerable supply deficits where we're likely looking at some 280,000 tonnes deficit in 2011 - and on average, a balanced market in 2010 that could very easily move into deficit territory as we move closer to the conclusion of the year. So we're quite optimistic for copper with prices up $3.70 considerably beyond the cost curve, mainly because of the very tight and tightening supply-demand conditions."
This is a quote from Bart Melek: Commodity strategist, BMO Capital Markets and the full interview can be read, and listened to, by clicking on the heading above.
Santelli rant on housing
Rick Santelli tells it like it is. Again.
The problem he points to is that a further collapse of the housing in dustry is inevitable as long as the Fed continues to meddle.
It is an axiom of economics that the longer you interfere and distort a market the harsher the ultimate inevitable correction becomes.
The interest rate on the mortgage is irrelevant if there is no equity left to lend against..even for well qualified borrowers with a job and an income.
The problem he points to is that a further collapse of the housing in dustry is inevitable as long as the Fed continues to meddle.
It is an axiom of economics that the longer you interfere and distort a market the harsher the ultimate inevitable correction becomes.
The interest rate on the mortgage is irrelevant if there is no equity left to lend against..even for well qualified borrowers with a job and an income.
Sunday, August 15, 2010
From Visual Literacy.org: A periodic Table of Visualization Methods
(Click on heading to get a brainload full)
Thanks to Barry ritholz for pointing me at this. He's right..it is cool!
Thanks to Barry ritholz for pointing me at this. He's right..it is cool!
Saturday, August 14, 2010
A Must Watch: Especially William K Black - the last 8 mns
(click on the heading above for full interview)
The startling nature of the coverup of wrongdoing in the current financial crisis is revealed by William K Black. He has the perfect credentials for making this indictment ...he ran the Savings and Loan cleanup in the 1980's.
Quite successfully, mind you.
This is something everyone can understand and must take to heart. The next financial crisis is baked in and there is no recovery from the current crisis until the issues Black discusses are addressed.
The startling nature of the coverup of wrongdoing in the current financial crisis is revealed by William K Black. He has the perfect credentials for making this indictment ...he ran the Savings and Loan cleanup in the 1980's.
Quite successfully, mind you.
This is something everyone can understand and must take to heart. The next financial crisis is baked in and there is no recovery from the current crisis until the issues Black discusses are addressed.
Thursday, August 12, 2010
Mortgage Debt Solutions - Alan Greenspan makes the case
Alan Greenspan said it best on Meet the Press (click on heading above for full interview) recently:
"It's a critical issue because, as you point out and as I've always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect.What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We've come all the way back--maybe a little more than halfway, and it's had a very positive effect. I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about."
The whole mess started with the unravelling of mortgage values used in plain vanilla CMO's and their highly complex derivative securities. Fix the value of mortgages by arresting the drop in property values and voila! a Greenspan fix.
I have been recommending for more than two years now, that Government has an obligation to step in and underpin the value of the most important asset worldwide: the stock of real estate.
A very large number of companies with exchange listings of their stocks are in a real estate related business; bolstering the value of their collateral the right way by refinancing mortgages at a Federal Agency, can rocket the price of the collateral, and hence their stock prices.
It can also save some vital corporations with huge exposure to mortgages (GE)that when properly accounted for, must unmask their bankruptcy.
And the greatest benefit: preserving the American Dream of home ownership at an affordable level for homeowners. Who knows, a renewed sense of security migh change sentiment around and ignite the economic growth we all want.
The truth shall set you free!
"It's a critical issue because, as you point out and as I've always believed, we underestimate the impact of stock prices on economic activity. Asset prices are having a profoundly important effect.What created the extent of the contraction globally was the loss of $37 trillion in market value. It collapsed the value of collateral in the system and it disabled finance. We've come all the way back--maybe a little more than halfway, and it's had a very positive effect. I don't know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we've been talking about today or anything anybody else was talking about."
The whole mess started with the unravelling of mortgage values used in plain vanilla CMO's and their highly complex derivative securities. Fix the value of mortgages by arresting the drop in property values and voila! a Greenspan fix.
I have been recommending for more than two years now, that Government has an obligation to step in and underpin the value of the most important asset worldwide: the stock of real estate.
A very large number of companies with exchange listings of their stocks are in a real estate related business; bolstering the value of their collateral the right way by refinancing mortgages at a Federal Agency, can rocket the price of the collateral, and hence their stock prices.
It can also save some vital corporations with huge exposure to mortgages (GE)that when properly accounted for, must unmask their bankruptcy.
And the greatest benefit: preserving the American Dream of home ownership at an affordable level for homeowners. Who knows, a renewed sense of security migh change sentiment around and ignite the economic growth we all want.
The truth shall set you free!
Quotable - Winston Churchill
If you will not fight for right when you can easily win without bloodshed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there in no hope of victory, because it is better to perish than to live as slaves. - Winston Churchill
Analysis: Major banks bolster reserves for mortgage repurchases
The four largest commercial banks in the country -- Bank of America, JPMorgan Chase, Citigroup and Wells Fargo -- booked $2.5 billion in second-quarter charges to cope with requests for mortgage repurchases.
Most of the requests came from Fannie Mae and Freddie Mac. The banks have faced soaring costs as mortgage buyers and insurers search borrowers' files for issues.
How in this wide world does the Government expect co-operation from the banking community in solving the mortgage crisis this way?
They force the banking community to sit on huge excess reserves, and prudent bankers now reserve a large portion of these excess reserves to give back to the Government via Fannie and Freddie mortgage repurchases!!
To make matters even worse, the uncertainty over the fate of said GSE's and the present panicked desperation surfacing in the form of clawbacks from the banks on any pretext, cannot make these "prudent" bankers enthusiastic about taking on any more risk with new mortgages or Heaven Forbid refinancing on terms favourable to the borrowers!
And now, to add misery to these woes the new Finance Reform contains provisions that mandate lending quotas....a major contributing factor in this mortgage mess in the first place!! ...the eggs of the next financial crisis have been laid and will soon hatch!
Imagine that your Government is here to help: you have made more loans to white borrowers than black and hispanics.
So in order to correct this unacceptable statistical anomaly you are ordered to make more loans the other way or face sanctions that will force you out of business!
It matters not a whit to the politicians that statistically, financially and in every other sane and rational deployment of centuries old criteria for lending that this population of borrowers is less credit worthy by any standard. Incomes are lower, collateral is poorer quality, credit histories are far worse, delinquencies are rife... but we are to ignore these inconvenient truths.
Rational business people dont make suicidal investment decisions guranteed to lead to their business demise.
The Federal Government does just that. It's sending more billions to 12 states that it deems most in need of mortgage help so that distressed borrowers can be forgiven parts of their loans. Of course, the new rules will apply. So how can this not again lead to lower lending standards just to meet quotas?
This morass is too difficult for lenders to negotiate. Better they make no loans to anyone except the Government which still allows them to borrow money at effectively no interest and lend it right back at a 2%-3% positive interest carry. And all this is risk free!
OF COURSE ALL THIS IS IRRELEVANT IF BUSINESS ACTIVITY IS SO DEPRESSED THAT NO-ONE WANTS TO BORROW ANY MONEY.
Marie Antoinette could not have said it better. They're hungry for bread? Let em eat cake. Sheesch!
Most of the requests came from Fannie Mae and Freddie Mac. The banks have faced soaring costs as mortgage buyers and insurers search borrowers' files for issues.
How in this wide world does the Government expect co-operation from the banking community in solving the mortgage crisis this way?
They force the banking community to sit on huge excess reserves, and prudent bankers now reserve a large portion of these excess reserves to give back to the Government via Fannie and Freddie mortgage repurchases!!
To make matters even worse, the uncertainty over the fate of said GSE's and the present panicked desperation surfacing in the form of clawbacks from the banks on any pretext, cannot make these "prudent" bankers enthusiastic about taking on any more risk with new mortgages or Heaven Forbid refinancing on terms favourable to the borrowers!
And now, to add misery to these woes the new Finance Reform contains provisions that mandate lending quotas....a major contributing factor in this mortgage mess in the first place!! ...the eggs of the next financial crisis have been laid and will soon hatch!
Imagine that your Government is here to help: you have made more loans to white borrowers than black and hispanics.
So in order to correct this unacceptable statistical anomaly you are ordered to make more loans the other way or face sanctions that will force you out of business!
It matters not a whit to the politicians that statistically, financially and in every other sane and rational deployment of centuries old criteria for lending that this population of borrowers is less credit worthy by any standard. Incomes are lower, collateral is poorer quality, credit histories are far worse, delinquencies are rife... but we are to ignore these inconvenient truths.
Rational business people dont make suicidal investment decisions guranteed to lead to their business demise.
The Federal Government does just that. It's sending more billions to 12 states that it deems most in need of mortgage help so that distressed borrowers can be forgiven parts of their loans. Of course, the new rules will apply. So how can this not again lead to lower lending standards just to meet quotas?
This morass is too difficult for lenders to negotiate. Better they make no loans to anyone except the Government which still allows them to borrow money at effectively no interest and lend it right back at a 2%-3% positive interest carry. And all this is risk free!
OF COURSE ALL THIS IS IRRELEVANT IF BUSINESS ACTIVITY IS SO DEPRESSED THAT NO-ONE WANTS TO BORROW ANY MONEY.
Marie Antoinette could not have said it better. They're hungry for bread? Let em eat cake. Sheesch!
Subscribe to:
Posts (Atom)