Wall Street's Latest Manufactured Outrage

[Donnachaidh]

http://motherjones.com/kevin-drum/2011/06/wall-street-latest-manufactured-outrage

The Fed and other regulators have proposed a set of rules that would put new limits on home mortgages: Borrowers would have to put 20 percent down and would have to show that their mortgage payments would amount to no more than 28 percent of their gross monthly income. The Washington Post makes this sound like doomsday:

Nearly three out of every five U.S. borrowers who bought homes last year would not have met the proposed restriction on total debt, according to an analysis by mortgage research firm CoreLogic....If the rules were in effect now, Todd Pearson of Ashburn predicts he'd be shut out of the market. Pearson wants to sell his house and buy another in Chevy Chase. He says he has no debts other than his mortgage. But he figures his mortgage payment alone would exceed the threshold proposed by the new rules.

You have to admit, these rules do sound pretty tough. In fact, they'd pretty much shut down the entire mortgage industry. So what's going on?

Answer: Lots of financial industry whining. As it turns out, regulators aren't saying that mortgage originators can't make any kind of loan they want. 20 percent down, 10 percent down, 5 percent down, whatever. Go to town. What they are saying is that if mortgage loans are bundled up into securities and resold, they want the issuer of the security to retain 5 percent of the total offering. That's part of Dodd-Frank, and it's designed to give issuers an incentive to make sure their mortgage securities aren't full of toxic waste. If they have to keep a piece of the action on their own books, they'll want to make sure their securities are safe and sound.

More at the link --

[leftistboy]

1. home prices would simply fall a lot until that 20% is affordable

a 20% down payment on a 150K house is 30K. True, not many people have that much cash. But if that 20% were made mandatory, the pool of home buyers would shrink, and so therefore demand would shrink. Demand shrinks, and so prices of homes would drop and drop and...etc.

After a couple years of that, homes that were $150K would be $70K.

20 percent of 70K is only 14K dollars. More people would have that amount.

See, THAT is the free market at work.

However, over 60 percent of voters own homes, and so politicians are never going to vote for such a 20 percent down payment law.

However, if the lenders DEMANDED 20 percent downpayment, that would be another thing entirely.


Now what is happening here in the article is the Congress acting through the Fed to protect the markets.

Whatever.

I sure hope it happens. I just sold my condo a few months ago. Took a small loss. Whatever.

Now I hope to get transferred to southern cal or WA state or Nevada. Sure would love to cash in on the REAL crash in home prices if a 20 percent down pay becomes the rule in the mortgage industry.

I think it would be a good thing for reviving populist leftism, something that left this nation decades ago.