Just in case you missed how horrendous the results of centralized, government planned, sub-prime, mortgage industry were, the Kommisars have decided to....
...create a sub-prime mortgage industry? From the Boston Herald:
•Strict mandatory debt-to-income limits. Under the proposal, to get the best mortgage rates, you would need to spend no more than 28% of your gross monthly income on housing-related expenses, and you couldn't have total monthly household debt that exceeds 36% of your income.
There would be no flexibility to go beyond these ceilings, unlike in today's marketplace, in which Fannie Mae and Freddie Mac consider debt-to-income ratios along with other factors through their electronic underwriting systems. Freddie Mac, for example, has an overall debt-ratio limit of 45% of an applicant's stable monthly income.
•To refinance your existing mortgage and replace it with one carrying the best interest rate, you'd need no less than a 25% equity stake in your house to qualify. If you sought to take any additional cash out through a refi, you would need 30% equity. Today's typical requirements for a conventional refi are nowhere near as strict.
•Pristine credit standards. For example, if you were 60 days late on any credit account during the previous 24 months, you would be ineligible for a mortgage at the best terms.
These are all core features of what may be the most sweeping and controversial set of changes in decades for the housing and mortgage markets. The so-called "qualified residential mortgage," or QRM, proposals were released at the end of March by banking, securities and housing regulators, along with the Department of Housing and Urban Development. The agencies were required by the 2010 financial reform legislation to come up with new standards for low-risk conventional mortgages.
Of course, this isn't being sold as a creation of a new sub-prime mortgage industry but simply rewarding those who have the money, credit history, and income to qualify for the best mortgage terms. Wait a minute! Isn't that what banks are supposed to do? Aren't bank underwriting departments supposed to analyze risk, assess a commensurate return required for that risk, and offer loan terms?
This is MORE centrailized planning and it won't work because it never does. Scream if you want but there is nothing you can do about it. This Administration rules with an iron fist and Wall Street, and the banking cartel are being guaranteed profits by eliminating any competitiion. These proposed rules will stifle any form of innovation in residential real estate finance. This is Rotarian Socialism at it's finest and, as Greg Swann says, "It's evil dressed up in a Brooks Brothers suit"
The only way to save the mortgage industry is to break up the big banks, deregulate completely, which means abolishing the FDIC depositor insurance, and letting the free market determine interest rates, risk analysis, and loan terms. If you want a robust economic recovery, get rid of this adolescent President, his Soviet-style Adminsitration, and demand an abolishment or (at the very least) completely transparent central bank (the Fed).
Can you imagine if the Kommisars regulated green beans the way they regulate your money?
Oh wait...never mind.
Picture credit icanhascheeseburger.com