New federal restrictions on mortgages not exactly CRA-friendly

posted at 8:41 am on January 10, 2013 by Ed Morrissey

Of all the provisions of Dodd-Frank conservatives disliked, the Consumer Financial Protection Board may have been the one least liked of all.  Its proponent, Elizabeth Warren, ended up in the US Senate when Republicans refused to support her nomination to run the CFPB, perhaps a bit of karma in the long run.  Now the CFPB has released its first set of mortgage rules, ostensibly to protect consumers — and conservatives may like what they see, at least conceptually if not organizationally:

The government is establishing new rules for mortgages that will make it harder for some borrowers to qualify but that are designed to prevent the kind of risky lending that nearly caused the housing market to collapse during the financial crisis.

The Consumer Financial Protection Bureau on Thursday will roll out the first of several far-reaching changes to the nation’s mortgage market, limiting upfront fees and curtailing practices such as interest-only payments that can leave homeowners stuck with unsustainable loans. The agency also will set standards for how much income a consumer must have to obtain a mortgage.

This marks the first time the government has spelled out what constitutes a “qualified mortgage,” an effort to prevent the widespread toxic loans that hurt millions of Americans during the housing crisis.

Banks that offer qualified mortgages will be protected from lawsuits if they adhere to the criteria. The consumer agency hopes that will drive the entire industry to live by the tighter standards that have taken hold since the crisis, ensuring safer loans but potentially limiting the number of people who can qualify to buy a home.

“Credit is going to be restricted, at least a little,” said Cristian deRitis, a senior director at Moody’s Analytics. “The debt-to-income cap, for instance, is going to affect some folks at the lower end of the income scale.”

In other words, the government is going to force lenders to stick to rules they liked before the government forced them to stop using them.  After all, it was government intervention that created the housing bubble by pressuring lenders into ignoring these criteria — first by force, with the Community Reinvestment Act in the 1990s.  Later, when the CRA didn’t work quickly enough, Congress created incentives for expanding subprime lending by pushing Fannie Mae and Freddie Mac into buying up massive amounts of questionable loans, making lending a risk-free proposition for paper-sellers like Countrywide Mortgage and others, and then securitizing them in the financial markets as low-risk bonds.

More than once, conservatives questioned this strategy.  Even George W. Bush, who liked to take credit for expanded home ownership himself, warned Congress about the risks in 2003 to no avail. The bubble continued to expand until suddenly, the economy slowed — and the false equity in the housing market started to disappear.

Now the government is intervening once again, in order to prevent lenders from doing what the government pressured them to do over a ten-year period, in order to avoid another collapse.  This isn’t a bad idea, conceptually, but I have a better proposal.  Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it?  Had we done that from the beginning, we never would have have the bubble in the first place.


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Only mental deficients (liberals) would think that it’s a great ideal to grant mortgages to people who are incapable of paying them…

wildcat72 on January 10, 2013 at 8:43 AM

In other words, the government is going to force lenders to stick to rules they liked before the government forced them to stop using them.

There you go.

But, Barney Frank said the CRA had nothing to do with the mortgage collapse. He wouldn’t lie, would he? //

BacaDog on January 10, 2013 at 8:49 AM

What could possibly go wrong?

trs on January 10, 2013 at 8:49 AM

Now the CFPB has released its first set of mortgage rules, ostensibly to protect consumers — and conservatives may like what they see, at least conceptually if not organizationally:

“When government expands, liberty contracts.”—Ronald Reagan

I’ll side with more liberty please.

PappyD61 on January 10, 2013 at 8:50 AM

The Consumer Financial Protection Bureau on Thursday will roll out the first of several far-reaching changes to the nation’s mortgage market, limiting upfront fees and curtailing practices such as interest-only payments that can leave homeowners stuck with unsustainable loans. The agency also will set standards for how much income a consumer must have to obtain a mortgage.

In other words, DUH! Making sure potential homeowners can not only afford the house they’re trying to buy but also forcing them to have some skin in the game by being required to put forth some sort of collateral upfront. What a concept!

Now the real question is will the government maintain these standards in the long run when people who would’ve bought homes they really couldn’t afford instead decide to rent. We all know how a bunch of Dems view homeownership as an inherent right.

Doughboy on January 10, 2013 at 8:51 AM

http://www.youtube.com/watch?v=uls9R742pvQ

http://www.youtube.com/watch?v=rv5t6rC6yvg

Two great, short, clips.

PappyD61 on January 10, 2013 at 8:52 AM

In other words, the government is going to force lenders to stick to rules they liked before the government forced them to stop using them.

And then use this as an example of why everything needs government regulation to work.

The Rogue Tomato on January 10, 2013 at 8:54 AM

WHAT!? No more wink-wink, nudge-nudge loans? Lending institutions will now demand proof of earnings? What an INNOVATIVE idea! How did the mortgage industry ever survive before this?

GarandFan on January 10, 2013 at 9:01 AM

Maybe in this day and age it is progress for government to take action to reverse bad policy. It would be nice if this could be made a habit and then transition to a point where bad policy is not initiated at all.

DaveDief on January 10, 2013 at 9:06 AM

Now the government is intervening once again, in order to prevent lenders from doing what the government pressured them to do over a ten-year period, in order to avoid another collapse.

The same thought crossed my mind when I heard about this on the radio very early this morning, and I hadn’t even had my first cup of coffee.

It’s almost funny, isn’t it?

Drained Brain on January 10, 2013 at 9:07 AM

Only mental deficients (liberals) would think that it’s a great ideal to grant mortgages to people who are incapable of paying them…

wildcat72 on January 10, 2013 at 8:43 AM

“Homeownership is a Right!” -Average Lefty

visions on January 10, 2013 at 9:08 AM

But, but, but isn’t that racist?

BlueStateExpat on January 10, 2013 at 9:12 AM

Maybe in this day and age it is progress for government to take action to reverse bad policy. It would be nice if this could be made a habit and then transition to a point where bad policy is not initiated at all.

DaveDief on January 10, 2013 at 9:06 AM

Not going to happen. Leftists believe that government always needs to be “doing something” or America is failing its citizens.

The concept that in some cases government doing nothing and simply getting out of the way is anathema to the Left. It’s “unamerican.”

If the government is doing nothing in some cases, and even reducing its scope, what would the Left have to pat themselves on the back about? It’s that simple. It’s all about “feelings,” emotions, and self-congratulation.

visions on January 10, 2013 at 9:14 AM

PappyD61 on January 10, 2013 at 8:52 AM

Dutch. What a mensch.

tom daschle concerned on January 10, 2013 at 9:16 AM

I got a good look at this mess, dealing with my girlfriend’s financial mess.

She was given a mortgage and a townhouse with $250 down… no collateral. Worked as a hairdresser. Terrible credit report full of defaulted loans.

She lost the house two years ago from something as stupid as trying to get away without paying her homeowners’ association fees for years, until the house was seized by the HOA.

I had heard about these ridiculous loans, but never really got it until I saw how a bank decided to put her in a house….

cane_loader on January 10, 2013 at 9:17 AM

See what the left has done here? They have instituted similar free market policies that were in effect prior to them screwing with them a few decades ago, except this time they now are firmly in control of the puppet strings. Now they can make mortgage bankers do whatever they want by simply tugging on the strings. No more messy Congress to go through.

Brilliant, if you really think about it.

dirtseller on January 10, 2013 at 9:18 AM

My wife and I just tried to buy a house here in Texas.

Despite having over 20% to put down, and perfect credit, we were refused and here is why:

My wife, a school teacher, and myself, a software engineer, recently normal our jobs so that we could begin to take over the family business so that my parents can begin to retire (both are in their 60′s).

Because the new business is drastically different from our previous employment, the banks freaked out and refused us. Despite having no debt, making more money now than before, and the family business going strong for over 25 years.

The mortgage guy said this was part of the new rules and we are basically out of luck for two years while we establish NEW employment history.

RogueZombie on January 10, 2013 at 9:19 AM

How did this happen? Oh yeah, Bawny no longer has any voice in the matter. …for now.

No wonder the Bun Patroller wants back in; he sees things going all wrong…

ROCnPhilly on January 10, 2013 at 9:20 AM

“…but I have a better proposal. Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it?”

Bingo. The only “regulation” needed in mortgage lending is a supremely simple proposition – i.e., when you risk your money by lending it out or by investing it, you get to keep the profits that arise…bu-u-u-u-u-u-t-t-t-t…you eat the losses that inevitably come too.

It would work flawlessly.

rvastar on January 10, 2013 at 9:22 AM

With respect to the economy, it seems like they would temporarily nullify the occasional volume of law just to take a look at how things should naturally work, then adjust the law accordingly before reinstating it.

In answer to the obvious question that would create, exactly.

Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it?

I think that’s the only actual conservative option.

Axe on January 10, 2013 at 9:25 AM

After all, it was government intervention that created the housing bubble by….

Now, see, Ed, you were doing great until right there.

At that moment, everyone in the MSM and their adherents jammed their fingers into their ears and began saying “lalalalalalala” at the top of their lungs.

cane_loader on January 10, 2013 at 9:17 AM

And she was your girlfriend? She must have met some other important two criteria. *ahem*

dirtseller on January 10, 2013 at 9:18 AM

Yep.

GWB on January 10, 2013 at 9:28 AM

cane_loader on January 10, 2013 at 9:17 AM

I hope for your sake she has learned her lesson, or you are in for a rocky marriage someday.

Wanderlust on January 10, 2013 at 9:28 AM

Ed, I thought CRA was initially passed under Jimmah, in 1977…?

Wanderlust on January 10, 2013 at 9:30 AM

After all, it was government intervention that created the housing bubble by pressuring lenders into ignoring these criteria — first by force, with the Community Reinvestment Act in the 1990s.

While this was a significant contributing factor, this was not the primary cause of the mortgage meltdown.

As alluded to but glossed over, the primary cause of the meltdown/bubble was the fraudulent securitization of mortgage securities and that has little to do with CRA. Without the securitization, fraudulent or otherwise, none of the toxic mortgages would have been made in the first place or at the very least not to the extent to bring down the global economy. This is not a defense of CRA but an attempt to set the record straight.

voiceofreason on January 10, 2013 at 9:31 AM

She was given a mortgage and a townhouse with $250 down… no collateral. Worked as a hairdresser. Terrible credit report full of defaulted loans.

She lost the house two years ago from something as stupid as trying to get away without paying her homeowners’ association fees for years, until the house was seized by the HOA.

I had heard about these ridiculous loans, but never really got it until I saw how a bank decided to put her in a house….

cane_loader on January 10, 2013 at 9:17 AM

Folks, this is the person that all these regulations (that are killing the mortgage industry, BTW) are made to protect.

This is what happens when they all win trophies and have high self-esteem.

dirtseller on January 10, 2013 at 9:35 AM

Two great, short, clips.

PappyD61 on January 10, 2013 at 8:52 AM

never gets old…

DanMan on January 10, 2013 at 9:38 AM

Folks, this is the person that all these regulations (that are killing the mortgage industry, BTW) are made to protect.

This is what happens when they all win trophies and have high self-esteem.

dirtseller on January 10, 2013 at 9:35 AM

I suspect she used her hawtness rays on the lender.

cane_loader on January 10, 2013 at 9:48 AM

cane_loader on January 10, 2013 at 9:17 AM

I hope for your sake she has learned her lesson, or you are in for a rocky marriage someday.

Wanderlust on January 10, 2013 at 9:28 AM

I hope she has, too. It was a hard lesson. All of this would be explored in much further detail to my satisfaction, should marriage be in the cards, oh believe me. Her financial flim-flammery & lies is the fly in the ointment. Supposedly she has changed, etc.

We’ll see.

Zero-tolerance policy on my part.

cane_loader on January 10, 2013 at 9:51 AM

Classic liberal approach to expanding government:

1. Claim market force results are racist or unfair.
2. Enact incompetent regulations to distort market.
3. Watch distorted market burn down.
4. Use burning market to justify further regulations of market in attempt to replicate free market.
5. Continue forever after to monkey with regulations while blaming market for not meeting liberal goals.

My new investment model is to watch for markets the liberals are screaming are unfair, wait for regulation to be enacted and then short companies in the field.

Over50 on January 10, 2013 at 9:56 AM

Stunning, base decisions on who gets mortgages on who can afford them, and let banks and not Democrats, based on their ideas of “fairness,” decide who is a good fit for a mortgage, and the market will take care of everything.

The only sad thing is that once the market recovers, liberals will be right back to demanding that banks give mortgages for 500k houses to people making 20k, or as liberals like to call them, the “middle class,” and we will go right back to where we were pre-2008.

milcus on January 10, 2013 at 9:58 AM

Banks that offer qualified mortgages will be protected from lawsuits if they adhere to the criteria. The consumer agency hopes that will drive the entire industry to live by the tighter standards that have taken hold since the crisis, ensuring safer loans but potentially limiting the number of people who can qualify to buy a home

Wouldn’t have been easier, and accomplished the same thing, by just rescinding the CRA?

Can everyone see what’s happened here? The government meddled in the mortgage market and forced banks to issue mortgages to people who didn’t qualify for loans. When that blew up in their faces, they then step in and save the day by requiring banks to enforce stricter loan qualification requirements.

And all the while, the feds take credit for both policies as if they’ve done their job both times. Thats just bizarre.

BobMbx on January 10, 2013 at 9:59 AM

Now the government is intervening once again, in order to prevent lenders from doing what the government pressured them to do over a ten-year period, in order to avoid another collapse.

…who needs comedy?

KOOLAID2 on January 10, 2013 at 10:04 AM

Supposedly she has changed, etc.

cane_loader on January 10, 2013 at 9:51 AM

*shakes head sadly*

Axe on January 10, 2013 at 10:06 AM

to prevent the kind of risky lending that nearly caused the housing market to collapse during the financial crisis.

Nearly? I’d say it went beyond nearly! That’s just like saying we nearly went over the fiscal cliff when it’s obvious that we had gone over the fiscal cliff and are now just awaiting the ACME Anvil (ala the coyote) to provide the final blow!

Liberty or Death on January 10, 2013 at 10:08 AM

visions on January 10, 2013 at 9:14 AM

There are sharply divergent opinions on this subject. The liberals and

Current TV blame Wall Street.

They characterize the position that Wall Street and the banks were victims by calling the idea of blaming the government, “The Big Lie” imagine how upset they were with Mayor Bloomberg on these comments:

The Big Lie made a surprise appearance Tuesday when New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.” Washington Post November 6, 2011, Barry Ritholtz, “What Caused The Financial Crisis? The Big Lie Goes Viral”

IlikedAUH2O on January 10, 2013 at 10:09 AM

Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it?

Surely you jest! The US government stay out of private business? The US Government back off controlling the guys who make big money? How on earth do you expect Owe to grow government? Remember, the private sector is doing fine and there comes a time when some people make just too much money.

voiceofreason on January 10, 2013 at 9:31 AM
And how do you think this happened? It was in response to private investors being forced to make unworthy loans, the US Govt allowed mortgage guys to do this fraudulent security by bundling and bundling and bundling.

katablog.com on January 10, 2013 at 10:14 AM

…and conservatives may like what they see, at least conceptually if not organizationally…

No one who likes any aspect of this could be described as a “conservative,” Ed. Yes, I know that you say at the end of the article that government should let the market decide, but prior to that you say more than once how this isn’t really a bad idea.

The federal government should have nothing to do with the mortgage market. Not a thing. They certainly should not be in the business of handing out mortgages, a la Fannie and Freddie, but they also should not be in the business of regulating mortgages. The mortgage market should be regulated by, well, the market and, if absolutely necessary, by the state governments. I fail to find an enumerated power in the Constitution that gives the federal government powers to establish organizations like Fannie and Freddie, and even regulating the market via the interstate commerce clause is iffy, because there are lots of locally owned banks that give out mortgages that never cross state lines.

In short, government is the problem. Therefore, government is never going to be the solution. There is nothing to “like” about this proposal. Republicans need to stop taking the approach that we don’t care about big government as long as we are the ones running it. That has been the GOP’s approach for far too long.

Shump on January 10, 2013 at 10:22 AM

Always look for the exception in the room when Democrats claim to be cracking down.

The FHA is now financing the majority of the mortgages in the country and this rule DOES NOT APPLY to them!

Freddy on January 10, 2013 at 10:30 AM

Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it? Had we done that from the beginning, we never would have have the bubble in the first place.

But…but…they’re from the gubment and they’re here to help!/

Seriously though, I had an argument with a libby/prog about this soon after the collapse of the housing market and they kept insisting it was the evil banks, the evil rich people and evil boooosh that caused the collapse. When I tried to explain to the libby/prog it was the lefty (Frank-Dodd) policies that forced banks to lend to money to people that couldn’t afford the loan all in the name of “fairness and equality.” Even when I gave them facts on when Bush tried to reign in Fannie and Freddy they (libby/progs) refused to believe the facts I placed in front of them, they stubbornly stuck with their talking points that is was the evil rich and the evil banks and evil booooosh that caused this.

This absolutely without a doubt proves it was the redistribution lefties policies that caused the housing market and financial collapse. It proves it was not the evil banks, the evil rich, or evil booooosh, yet the left will continue to push the meme and the lefty morons will continue to lap up their lies as if it were truth thanks to the complicit lefty media!

EAT CROW YA LEFTY MORONS!

Liberty or Death on January 10, 2013 at 10:32 AM

Ronald Reagan is blamed for the 2008 Meltdown while Obama slips away.

See RR was involved in deregulation. Regulation has such a spotless track record in this nation. Madoff. MF Global, Peregrine Financial and several others showed that fundamentals were a large factor in every scandal.

The proponent of blaming capitalism for the 2008 collapse, at the Washington Post, Mr. Barry Ritholtz has a legal and political science education. He ran a small fund on Wall Street which I think was involved in real estate like Australian office buildings. This should set off both red flags and fireworks.

For some reason, the lobby for the poor, the eventual creation of the CRA and the whole thrust of promoting home ownership and real estate investment with loose lending is lost on people like him. His followers link the mess to Reagan, Volker and even WMDs.

People used to put 50% down on mortgages. The banks held the loans.

That switched to subprimes. With 125 LYVs. No documentation of income. Neg Amortizations. Then pooled and sold. The final derivatives, securities were just a complicating factor — the toxic situations were already created.

It was people with trillions in bad loans.

IlikedAUH2O on January 10, 2013 at 10:34 AM

The government shouldn’t have meddled then and it shouldn’t meddle now. The banks have already self-corrected. The CFPB is just another monstrous regulatory body whose sole purpose is to employ more OBots, produce more harmful regulation, and consolidate Statism.

The citizens need to be protected from their government.

CorporatePiggy on January 10, 2013 at 10:38 AM

It goes back much farther. Down payments as set by a free market were typically ten percent, a few decades ago. The problem of getting rid of that control was at least as important as the afore mentioned problems. Presently, some other countries have much higher down payments than ten percent.

burt on January 10, 2013 at 10:47 AM

Speaking of Karma, Didn’t Scott Brown vote for the Dodd-Frank Act, that created the CFP, that hired Elizabeth Warren, that now sits in the seat that Brown did? Hahahaha!

kringeesmom on January 10, 2013 at 10:49 AM

The narrative is vital.

I was asked to pose these remarks:

Bronco Bama Macro and Micro disasters

It is amazing that this administration ducked any fault in the 2008 meltdown while pasting the words Wall Street on Mitt at every opportunity. And remember, Wall Sttreet caused the whole 2008 mess. Just check any speech on the subject by President Obama.

Michelle Malkin, the former boss here, in her book, Culture of Corruption detailed the real estate fiasco laded Chicago life of our POTUS and his staff.

And the smallest micro of corruption was the nice strip of land, O got from Tony Rezko to add to his home. That was an interesting deal.

Mitt

No commonsense analysis was given to his candidacy.

On the other side, we have a successful and charitable candidate who did close some firms but also built several enterprises. He ended up on defense.

This treatment of Mitt was like the attacks on Mccain. In the last month, I had a black guy at the VA tell me all McCain did was crash planes. and “A Viet Nam vet said that..” to him. Now I never flew a jet much less over hostile territory but I guarantee you that McCain did a lot more than that to get rank and commendations. I don’t care if he was the son of the First Lord of the Admiralty.

IlikedAUH2O on January 10, 2013 at 11:01 AM

kringeesmom on January 10, 2013 at 10:49 AM

They were both expressing the will of the folks in Massachusetts.

IlikedAUH2O on January 10, 2013 at 11:03 AM

Just get the government out of the way of most things and let the free market work.

nazo311 on January 10, 2013 at 11:09 AM

voiceofreason on January 10, 2013 at 9:31 AM
And how do you think this happened? It was in response to private investors being forced to make unworthy loans, the US Govt allowed mortgage guys to do this fraudulent security by bundling and bundling and bundling.

katablog.com on January 10, 2013 at 10:14 AM

Not exactly. Not even close. It happened because there was no government oversight or enforcement with regard to the securitizations and their credit ratings. There is no way that DDD paper becomes AAA paper by slicing, dicing and insuring. Yet that was the representations being made. It was the AAA stamp of approval that allowed for the proliferation of the toxic paper globally. Without the fraudulent AAA rating, institutions and sovereign investors would have been prohibited from buying the paper. Thus without the AAA stamp, the bubble never inflates.

Furthermore, CRA loans were a very small piece of the toxic pie. Subprime and Alt A loans along with no income, no asset and no job loans had nothing to do with CRA. And that is where the bulk of the toxic paper came from. Additionally, in the mortgage industry, no one writes a loan unless there is a buyer for it. The paper is bought primarily through securitization. It was through fraud that toxic securitization was successful. Without the buyers of the paper, the paper would never have existed in the quantity necessary to bring down the global economy.

Fraudulent securitizations and the fraudulent representations of their AAA ratings are the heart of the matter. Everything else is a consequence.

It is maddening that no one has gone to jail and or companies closed in disgrace. Instead you have Jamie Dimon and Jeff Immelt on the zero’s board of economic advisers and Mark Zandi of Moody’s (a rater of the toxic paper as AAA) is a state owned media favorite economist.

voiceofreason on January 10, 2013 at 11:12 AM

Supposedly she has changed, etc.

cane_loader on January 10, 2013 at 9:51 AM

*shakes head sadly*

Axe on January 10, 2013 at 10:06 AM

Oh man,,,, great video.

that’s her.

cane_loader on January 10, 2013 at 11:29 AM

“The debt-to-income cap, for instance, is going to affect some folks at the lower end of the income scale.”

Racist.

blindside on January 10, 2013 at 11:33 AM

Oh man,,,, great video.

that’s her.

cane_loader on January 10, 2013 at 11:29 AM

:) You gotta do what you gotta do.

Axe on January 10, 2013 at 11:41 AM

They can rewrite all the rules they like, but part of the beautiful perversity of the CRA is that it encourages extra-legal harrassment of banks that didn’t toe the line and make risky loans. That’s so in the end the proggie government could evade responsibility for the inevitable crash, and blame it on the banks.

slickwillie2001 on January 10, 2013 at 11:42 AM

:) You gotta do what you gotta do.

Axe on January 10, 2013 at 11:41 AM

Can’t decide if it’s like dating a tiger or a hurricane or the Tasminian Devil. Kind of a combo, I guess :-/

cane_loader on January 10, 2013 at 11:42 AM

While this was a significant contributing factor, this was not the primary cause of the mortgage meltdown.

As alluded to but glossed over, the primary cause of the meltdown/bubble was the fraudulent securitization of mortgage securities and that has little to do with CRA. Without the securitization, fraudulent or otherwise, none of the toxic mortgages would have been made in the first place or at the very least not to the extent to bring down the global economy. This is not a defense of CRA but an attempt to set the record straight.

voiceofreason on January 10, 2013 at 9:31 AM

Securitization accelerated the size of speed with which the bubble inflated, but it was a bubble nonetheless, and it was going to crash. You’ve got it exactly backwards as to what started it. It wasn’t securitization of mortgages that drove bad lending (at least initially). Mortgages had been safely securitized for years prior, and lending standards were tight.

The ROOT cause was, and remains, government intervention in the lending markets in the name of ‘social justice’.

blindside on January 10, 2013 at 11:56 AM

To add to the above VR post about credit ratings, I agree – there is no way that bad credit ratings should become good credit ratings by slicing and dicing, but that is the responsibility of the investors to realize and understand, not the government to regulate.

Toxic loans aren much less likely to be made if the originator of said loan has to hold the note, instead of selling it to someone else…say, for example, a willing buyer like Freddie or Fannie who were asking for more and more paper to be sold.

blindside on January 10, 2013 at 12:01 PM

I am a 17-year veteran of the mortgage business and this is the best thing I have read in all that time about federal interference in the mortgage market.

The 2014 fair lending exams by the OCC should be very interesting.

rockmom on January 10, 2013 at 12:05 PM

No, I don’t like this. Why would I like bigger government telling bankers how to do their business? I would prefer government to say, “Bankers, make risky loans at your peril.”

It is incredulous that Obama’s admin, with its history of lending money to noncreditworthy entities, is now telling bankers to make loans based on the creditworthiness of borrowers.

Again, why would I as a Conservative be happy that government is being looked at as the solution. Incredible.

ezstreet on January 10, 2013 at 1:22 PM

Let’s not forget the role George Bush played in this idiocy.

According to this act, the US government will keep aside $200 million to sanction home buying grants for the low-income group. This will relieve the low-income group people of the burden of a huge down payment that they would have to make as a part of a home loan.

American Dream Down Payment Act

The American Dream Down Payment Act was signed on December 16, 2003 by President George W. Bush. This new program is a joint venture of the American government and the banks to provide grants to the home buyers of the low-income group. According to this Act, grant would be issued to an individual to meet the down payment and closing expenses of a home loan.

To be eligible for this grant, you should be a first-time home buyer and your annual income should not exceed 80% of the area median income.

As per this act, the maximum amount granted will be six percent of the purchase value of the house or $10,000. The grant amount can be used as the down payment and to meet all the transaction expenses associated with home buying.

This grant program would be handled and overseen by the US Department of Housing and Urban Development (HUD). The aim of this Act is to encourage people belonging to low income group to invest in a home.

A professional appointed by HUD would assist the home buyer in the purchase of the house. Even if you have a bad credit history or an inadequate credit score, you are eligible for this loan if you are a first-time home buyer. The home buying grant is also called “free money” because you do not have to pay any interest and monthly installment on this amount.
Read more at Buzzle: http://www.buzzle.com/articles/grants-for-home-buying.html

What could possibly go wrong with providing taxpayer funded grants to people with “a bad credit history or an inadequate credit score” so they could buy a house? Barney Frank and Chris Dodd assured everyone it would work out just great and opposing the law would be baldfaced racism at its worst.

in_awe on January 10, 2013 at 1:59 PM

the government is going to force lenders to stick to rules they liked before the government forced them to stop using them

What’s not to like? But this is only good until DC decides everyone has a right to own a home. The tree of liberty is wilting. Getting very close to the time to refresh it.

RedInMD on January 10, 2013 at 2:12 PM

Why not just get government out of the lending business and let the people whose capital is at risk decide how to invest it and lend it? Had we done that from the beginning, we never would have had the bubble in the first place.

That just makes too much sense. Then there is another problem with that; we would have to layoff some government workers.

Mirimichi on January 10, 2013 at 2:39 PM

In other words, the government is going to force lenders to stick to rules they liked before the government forced them to stop using them

Sums it up pretty well.

It does not mean the government admits to causing the problem to begin with, though.

TerryW on January 10, 2013 at 3:14 PM

Getting very close to the time to refresh it.

RedInMD on January 10, 2013 at 2:12 PM

Well past time to refresh it. It may require some pruning, now, as some of the limbs are looking a little blue. (Not the liberties themselves, mind you.)

GWB on January 10, 2013 at 3:39 PM

The ROOT cause was, and remains, government intervention in the lending markets in the name of ‘social justice’.

blindside on January 10, 2013 at 11:56 AM

The “experts” who blame Wall Street miss your whole point. We had pools of mortgages before like GMA pooling them for years.

Bad loans are a toxic asset.

The idea that rolling them into securities did increase volume. Yes! Increase the volume of bad paper the government designed and encouraged!

Gee, which increases the problem, giving people money to get any home they want while values are going up? Or selling worthless mortgages to Germany?

And for you proregulation buccos:

Go read about what was called “Low Income Housing” like the old Section 8 Program. A developer’s dream…..

IlikedAUH2O on January 10, 2013 at 5:55 PM

blindside on January 10, 2013 at 12:01 PM

It’s pretty cruel to hold investors accountable when they’ve been fraudulently deceived in their due diligence.

voiceofreason on January 10, 2013 at 6:15 PM

voiceofreason on January 10, 2013 at 6:15 PM

Did Wall Street print false credit reports, asset records, or income verifications?

They did not have to.

IlikedAUH2O on January 10, 2013 at 6:28 PM

It is maddening that no one has gone to jail and or companies closed in disgrace. Instead you have Jamie Dimon and Jeff Immelt on the zero’s board of economic advisers and Mark Zandi of Moody’s (a rater of the toxic paper as AAA) is a state owned media favorite economist.

voiceofreason on January 10, 2013 at 11:12 AM

They didn’t break any laws and were doing what Uncle Sam wanted to do.

We just had mortgage services have to pay billions for real fraud. Nobody went to jail there either.

Finally, I could not find the real jewel on Fault and Blame! (sigh). so this will have to do.

In testimony before the Financial Crisis Inquiry Commission (FCIC), former Federal Reserve
Chairman Alan Greenspan (2010) argued that it was the supportive bid provided by the GSEs for
subprime PLS during 2003-2004 that caused mortgage yields to fall relative to 10-year Treasury
notes, “exacerbating the house price rise which, in those years, was driven by interest rates on
long-term mortgages.” Because these purchases were made in pursuit of affordable housing
goals, Greenspan argues “a significant proportion of the increased demand for subprime
mortgage backed securities during the years 2003-2004 was effectively politically mandated, and
hence driven by highly inelastic demand.” By acquiring 40% of all PLS collateralized by
subprime mortgages, Fannie and Freddie stoked demand for risky mortgages that contributed
directly, in Greenspan’s telling, to the housing bubble and subsequent financial crisis. Similar
points were made in Rajan (2009).Source St Louis Fed Research on the web,

IlikedAUH2O on January 10, 2013 at 6:32 PM

I think the mortgage crisis and the resulting rules that were the subject of the posting is kind of like what often happens after an airliner goes down or a train wreck and people die. An imperfect analogy to be sure, but the result seems similar.

Decisions are made for other reasons that something can be slighted (i.e. mortgage standards) to achieve some politically desirable goal (increased minority homeownership).

The lenders would not voluntarily reduce their standards on their own, because they seem to think they need to be responsible managers, so they must be forced (by government regulators) to do so.

The lenders, under the gun, go along, especially since the government made it easy to do via loosening standards at FNMA and FHLMC et al., and after a moderately long party, the whole edifice comes crashing down (for various reasons). This is not to say that some private folks didn’t do stupid and/or unwise things as well.

Now because of the crash and burning of the housing market and collateral effects on the economy — which cannot be concealed or ignored — the government decides that it should require the lenders to adhere to something similar to the standards the lenders used to follow before the government told them to stop doing that. Mostly because the government has to be seen as “doing something” and many choose to be blind to the role government played in initiating and egging on the practices that resulted in the crisis, so obviously THEY have to “correct” the lenders with new regulations.

Russ808 on January 10, 2013 at 7:25 PM

Also, remember that Holder has just shaken down the banks for 500,000,000 in “guaranteed loans for blacks” due to “disparate impact”. He will continue for as long as it takes.

See: HERE

Bulletchaser on January 10, 2013 at 8:58 PM

They didn’t break any laws and were doing what Uncle Sam wanted to do.
IlikedAUH2O on January 10, 2013 at 6:32 PM

Fraud isn’t a crime? The FBI warned of mortgage fraud way back in 2004.

The FBI has been warning of an “epidemic” of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds.1 When the person that controls a seemingly legitimate business or government agency uses it as a “weapon” to defraud we categorize it as a “control fraud” (“The Organization as ‘Weapon’ in White Collar Crime.” Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds’ “weapon of choice” is accounting. Control frauds cause greater financial losses than all other forms of property crime — combined.

And there’s more…

The first document everyone should read is by S&P, the largest of the rating agencies. The context of the document is that a professional credit rater has told his superiors that he needs to examine the mortgage loan files to evaluate the risk of a complex financial derivative whose risk and market value depend on the credit quality of the nonprime mortgages “underlying” the derivative. A senior manager sends a blistering reply with this forceful punctuation:

Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.

Read Professor and the last enforcer the U.S. had, William K. Black’s piece.

Now please, I don’t want to get rude.

voiceofreason on January 10, 2013 at 10:13 PM

I have a great deal of trouble accepting that anything bearing the names of Christopher Dodd and Barney Frank can either make sense or be good. After all it was Barney Frank who was largely repsonsible for the Community Reinvestment Act and Chris Dodd was one of the friends that bought on the Banking Collapse of 2008. Both are too stupid to be in vote and both are too corrupt to govern. At least Dodd has retired but Frank is whining that he should be appointed to the Senate. Help us Obiwan.

georgeofthedesert on January 11, 2013 at 11:59 AM