It is true to say the housing situation only took place because of weak lending criteria that caused the housing bubble. This in turn also resulted in the property foreclosure epidemic in turn. But experts, including the chairman of the Federal Deposit Insurance Corporation (FDIC), are saying the government has yet to learn the lesson. The financial reform debate ended in no requirement of adequate down payments on home loans. Federal housing agencies project a return to subprime lending. The Federal Reserve appears to be making the issue worse by not letting natural correction take place with anything that is going on in the situation.
Will skin within the game help more or loan performance?
Home loans in the United States of America need federal regulators to tighten financing rules. Sheila Bair is the chairman of the FDIC who believes this. “Common sense” rules were the suggestion Bair maid to CNBC. These rules would include a larger down payment on homes while also making sure the borrower can prove to be able to pay back the mortgage. She thinks that loan performance won’t do it alone. We also have to have some “skin in the game”. A borrower is less likely to just walk from a home when they have lots of cash put into that home. Going forward from the housing crisis, Bair said lending standards need to call for strict income documentation, higher ability to repay criteria and much more skin within the game.
Every person wants subprime lending redux
The federal government is slow at picking up on things says Edward Pinto at Bloomberg. The government nevertheless doesn’t realize weak financing specifications are what brought the economy down and will keep it there. The Obama administration and Congress clearly don’t want to fix the broken underwriting since last July the Dodd-Fran bill was signed into law, writes Pinto. There was no amendment added to the financial reform bill saying that a minimum down-payment would be required with a credit history consideration and a “prudent underwriting” standard added. Subprime lending redux was focused on in September by the Federal Housing Finance Agency focusing only on low income borrowers that have low credit scores. Pinto thinks that it is riskier to follow all the brand new policies than it was bailing out Fannie Mae and Freddie Mac with taxpayer dollars.
Fixing the issue
The Christian Science Monitor has Bill Bonner saying the real estate situation will likely linger for a when with the reaction the government has taken. Bonner writes that the government continues to extend credit and money too those that do not deserve it and pretends there is no much more problem. Billions in mortgage debt that will never be paid are sitting on the United States of America financial system right now. So the Federal Reserve bought up the bad mortgage debt and called it an “asset.” Bonner said the real solution is the market correction the government is attempting to stay away from. The government finances more mistakes, keeps paying for the old mistakes and pretends that anything will be fine–until it finally runs out of money.
Further reading
CNBC
cnbc.com/id/39074467
Bloomberg
bloomberg.com/news/2010-09-08/subprime-2–is-coming-soon-to-suburb-near-you-commentary-by-edward-pinto.html
Christian Science Monitor
csmonitor.com/Business/The-Daily-Reckoning/2010/0909/Extend-and-pretend
