Stop A Real Estate Situation Simply By Placing Much More Skin In The Game

Posted on November 29, 2010 @ 6:04 am

The property foreclosure pandemic all began with the housing bubble that took place with financing standards creating the real estate situation. The government hasn’t learned any kind of lesson says the Federal Deposit Insurance Corporation (FDIC) chairman. An amendment calling for adequate down payments for home loans was defeated during the financial reform debate. Federal housing agencies project a return to subprime lending. And the crisis is being perpetuated by the Federal Reserve, with policies that prevent a natural correction that is the ultimate solution to the issue.

Will skin within the game or loan performance be more beneficial

Home loans within the United States of America need federal regulators to tighten lending rules. Sheila Bair is the chairman of the FDIC who believes this. CNBC showed Bair saying that borrowers have to be able to show they can repay a mortgage loan and make larger down payments on the home loans as part of “common sense” rules. She thinks “skin within the game” and loan performance will work well together. A borrower is less likely to just walk away from a home when they have a lot of cash put into that home. There is one way to move forward from the real estate crisis, she said. It involves having higher expectations for ability to repay, much more skin within the game and strict income documentation.

Everybody 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 criteria are what brought the economy down and will keep it there. Pinto talks about the Dodd-Frank bill that was signed into law last July. He says this law proves that fixing the broken underwriting is not something Congress and also the Obama administration is interested in doing. An amendment to the financial reform bill that would have added a minimum down-payment requirement also as consideration of credit history, along with definition of a “prudent underwriting” standard, was defeated. This made it possible for low income borrowers with low credit scores to have homes available to them. Pinto said the newest policies are riskier than those resulting in the Fannie Mae and Freddie Mac taxpayer bailout.

Face the issue rather than avoiding it

The Christian Science Monitor has Bill Bonner saying that the housing situation will likely linger for a while with the response the government has taken. Bonner states the government ignores the issue by just giving out money and credit too numerous who don’t deserve it. Billions in mortgage debt that will never be paid are sitting on the United States of America financial system right now. The Federal Reserve is saying that the mortgage debt it’s holding on to is an “asset..” Bonner said the real solution is the market correction the government is trying to avoid. Until the cash runs out, the government will continue to finance mistakes, pay for old mistakes, and pretend nothing bad occurred.

Additional 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







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