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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Meet the New U.S. Housing Market Mortgage Rules – They’re the Same as the Old Ones

Housing-Market / US Housing Oct 24, 2014 - 10:15 AM GMT

By: Money_Morning

Housing-Market

Shah Gilani writes: And you thought the federal government was getting out of the mortgage guaranteeing and backstopping business.

In fact, the feds are not only not getting out of the mortgage business, but they’re already blowing up the next bubble.

As a result, the Great Recession – spawned by the credit crisis, easy-money mortgages and low interest rates – is going to make a comeback.


We already have artificially low interest rates, so check that box. All we have to do now is start dishing out easy mortgages again.

Well, we can now check that box, too…

Private Money

Now when I say “federal government,” I mean asinine legislators directing equally asinine regulatory agencies.

And here are a few of those “august” agencies now.

The U.S. Federal Reserve, the U.S. Securities and Exchange Commission and the U.S. Department of Housing and Urban Development all just signed off on new mortgage rules.

Originally, in the aftermath of the mortgage meltdown, here’s what was supposed to happen.

Lenders in the private-money mortgage origination and securitization game (“private” meaning not guaranteed by the federal government in some way) were going to have to demand a 20% down payment from borrowers. Or they were going to have to retain 5% of the mortgages they made on their own books if they wanted to securitize those loans and sell them to investors.

However, here’s what showed up in the final version of the long-awaited mortgage rules.

Our stalwart government lackeys bent over backward on behalf of banks and said, “Fuhgettaboutit! You don’t need to get a 20% down payment, and don’t bother keeping some of that crappy risk you’re taking on your books.”

Basically, here are the new rules: Check the borrower’s ability to repay (which means check for a pulse and a job), and make sure they don’t have more than 43% debt-to-income levels. Then, have at it all you want.

Of course, not everyone in government is an idiot or on some bank’s payroll. Two out of five SEC commissioners voted against the lenient rules. Republican commissioners Daniel Gallagher and Michael Piwowar strongly objected.

Gallagher said, “Today’s rule-making takes the untenable housing policy that injected irrational exuberance into mortgage lending and, as a result, caused a catastrophic financial crisis and chisels that failed policy into the stone tablets of the code of federal regulations.”

Now, the private-money mortgage game is a tiny slice of the whole game. Last year, private mortgages amounted to $27.8 billion out of $1.58 trillion in total mortgage loans (including refinancings).

The idea was to tighten up rules in the private (nongovernment-backed) market first and then get the government out of the mortgage business.

So much for that idea.

Public Money

Legislators and regulators caved in to lenders on these rules, in part, because they’re seeing the housing market start to slip again on account of heightened lending standards. And the way to strengthen the housing market, of course, is to make it easier for people to borrow to buy houses.

The private mortgage market isn’t ever going to replace the public market as long as the government keeps growing its backstopping engines: the Federal Housing Administration, Freddie Mac and Fannie Mae.

You remember Fannie and Freddie. They were the private companies (with lots of stockholders and bondholders)/government-sponsored enterprises taken over by the government in 2008 before they imploded the United States into a hole we may never get out of.

They guaranteed trillions of dollars of mortgages and bought pools of them so they could reap the interest income from them. That is, until the game came crashing in on them.

Well, they’re bigger than ever. Between Fannie and Freddie and the FHA, the federal government backs (in some way) more than 95% of all mortgages now created in the United States.

That’s right. We’re headed right back where we just came from.

I’m all for loosening up lending standards – but not for taxpayer backing.

Government idiots are all about slathering voters with easy mortgage money avenues, and the Fed is all about slathering banks with profit-making opportunities.

Together, they are cooking up another you-know-what stew.

Source : http://www.wallstreetinsightsandindictments.com/2014/10/meet-new-mortgage-rules-theyre-old-ones/

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