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I note that the Federal Reserve has stepped in to the mortgage… 
18th-Dec-2007 10:18 pm
I note that the Federal Reserve has stepped in to the mortgage market, and tried to work at elaborating that legal cause of action so wished-for by the trial lawyers: the offense of lending money.

I'm not kidding. In the bulletin, they also purport to remove the borrower's ability to finance the mortgage broker without the mortgage broker paying it back (that is, folks the meaning of the phrase "adequate disclosure"), and the spread that lenders are allowed to make over Treasury before these regulations kick in.

Probable result? Many mortgage brokers will simply decline to represent clients who would qualify for subprime loans, and a product which was used well by 80% of those who used it will be unavailable to anyone in that market. Home ownership, supported by the capacity to finance, will take another blow. This, of course, in the name of "protecting" those people from seeking the American dream of home ownership. Silly them. The upside for me is that money originally destined for the consumer market might end up propping up the commercial end, where I work.
19th-Dec-2007 12:57 pm (UTC)
I have absolutely no problem whatsoever with the subprime market going the way of the dodo. Everyone, from Congress to the Fed to the lenders themselves and the borrowers, were asking for this debacle years ago when someone cleverly started this "niche" -- partly at the behest of the people at HUD and Commerce in the early/mid 90s. Low interest rates invariably increase, and that's what folks seemed to overlook. In doing so they seemed to forget that people with poor credit tend to have it for a reason. I'm not trying to be mean, but that tends to be the case. There are, of course, exceptions, but by and large it means people have problems with fiscal discipline. Often it means they have too many credit cards, which is another huge problem we're going to be facing at some point in the future.
19th-Dec-2007 02:39 pm (UTC)
I would argue that a product that is successful with 80% of those who use it, works properly. They had low credit. They bought. They were properly advised. They are still paying off their loans. A mortgage is a way to TEACH fiscal discipline, too.

In other words, it sounds to me that you are saying that because the default rate is higher, the existence of the 20% who are foreclosed upon should prevent the 80% who used it properly, or those similarly situated in the future, from doing anything of the kind. No American dream for them. You are describing the majority experience as "exceptions" in your post.

And I'm suggesting that focusing on the failure rate, rather than the success rate, is a way to make bad policy.


Edited at 2007-12-19 02:42 pm (UTC)
19th-Dec-2007 03:12 pm (UTC)
When I used to work in the mortgage and then the collections business back in the 90s, the subprime borrowers were generally the ones we got sent after. They got hit constantly, especially by the marketing people, because they were considered "prime" for refinances when they got into hot water with their mortgage. The refinance would buy them some time, and for the loan folks it would a) give them one more loan, b) keep the borrower's off the collection books for another while, and c) give them a few thousand extra in pocket money. I detested this, and I got into hot water for trying to teach borrowers how to keep a budget.

I reckon I was just too involved in it back in the day to really have anything but a very bad taste in my mouth from the whole deal. Part of the reason I got out of the business was the way I saw folks getting it from lenders while all the while the subprime market was being touted as the goose that laid the golden economic egg. In some ways it did, I reckon, but... I never saw how great it was, except for how some folks made a quick and easy buck and then others of us had to go out and break the bad news in a year or two.
19th-Dec-2007 05:20 pm (UTC)
I have the same problem with banks that package commercial mortgages they have no intention of keeping on their books for "fee income" rather than acting as bankers. And I know that if I was willing to represent one of those banks, they'd happily pay me to get the loans that they are syndicating without much looking at the loans themselves.

I'm choosing to be poorer with a clean conscience: I don't put people into buildings that don't pay the mortgage with enough left over for maintenance and profit (at least at REIT rates). So I turn down deals. And people walk away when they hear that I'm not going to do the commercial equivalent of "stated assets/stated income/" on their deal: there has to be value there to make sense.

I'm no saint: it's just that my private calculations about boomer retirement indicate a major loss of investible capital in the economy after about 2012 -- more money being consumed than invested for the future, and the loan has to work in those circumstances or someone will be knocking on my door asking me to buy it back.
19th-Dec-2007 06:15 pm (UTC)
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