Obama administration pushes banks to make home loans to people with weaker credit

[Fern]

-snip-

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default

I'll be surprised if any bankers decide to now make loans to "riskier borrowers" just because the President said so. Is that all that is going here? I'd be a little surprised if it was.

Fern

 

[BoberFett]

I'll be surprised if any bankers decide to now make loans to "riskier borrowers" just because the President said so. Is that all that is going here? I'd be a little surprised if it was.

Fern

Exactly. We're just getting the PR spin. In order for the banks to suddenly open up their lending standards, there's something going on under the table that Oflimflamma isn't telling us.

 

[fskimospy]

I think we are talking past each other on this.

Was the driving factor behind the financial collapse the collapse of the housing market? Yay or nay? Does reinflating said market by using govt incentive\backing\manipulation by giving govt backed loans to those who would otherwise not get them run the risk of another collapse?

No, it doesn't. I find no plausible way by which this policy would reinflate the housing bubble to a dangerous extent. Like I said before the problem was fraud, but as others mentioned the securitization process was also a big problem.

Government backing of a few more home loans is exceedingly unlikely to have such an effect.

 

[Darwin333]

I'll be surprised if any bankers decide to now make loans to "riskier borrowers" just because the President said so. Is that all that is going here? I'd be a little surprised if it was.

Fern

They might if said government is guaranteeing said loans effectively removing risk from the banks.

I gotta agree with eskimospy though, I can't imagine there will be a huge percentage of home loans of this type and even if there is the risk is rather defined. During the housing bust no one had any friggen idea who had what type of exposure, leverage, risk, etc..

Basically, they are saying that they won't take legal action against a bank if one of the banks FHA insured (read: taxpayer insurance against mortgage default. not sure how its funded though, could very well be self sustaining) loans defaults due to the relaxed guidelines.

 

[Budarow2]

The difference is, this time we will not only know the crash is coming, we'll have a pretty good idea of when.
Personally, I'll sell when my house hits $600k, and buy it back three years later for $125k.

I can hardly believe we'd get another credit bubble as big as the last 1. But Dr. Doom (Nouriel Roubini) claimed about 4 months ago a credit bubble was building which would be bigger then last time so maybe you get your $600k house.

I just proposed to my wife doing some updates to our house now and if the price rises $60k (from ~$180k now to $240k or 33%), selling the place, renting for a couple years and see what happens.

 

[DucatiMonster696]

The financial crisis was from banks not being held responsible for their actions.

What makes you think they will be held responsible at all? We just had Eric Holder saying he doesn't have the ability (read: balls) to prosecute the heads of these firms. Even the government "watchdogs" of this industry are not willing to act to limit the liabilities and dangers faced by these banks operating on a modus operandi status today.

Then we have the both parties saying we can't allow "Too big, to fail" to actually fail (Thank you Dodd-Frank Act!) in our economy because then they will lose votes when the much needed correction arrives but this time with a vengeance as it was denied to the ability to correct the economic imbalance of mal-investments in the past.

Failure has been removed (or at least is being subverted) from an economic system which requires it as much as it requires allowing success to occur and the consequences are still being felt today. Of which if this action being proposed by Obama is allowed to occur it will more than likely will be felt significantly more so if this stupid and reckless idea is given room to grow and blossom in order to deliver it fatal fruit to our economy.

http://www.huffingtonpost.com/2013/03/06/eric-holder-banks-too-big_n_2821741.html

http://townhall.com/tipsheet/keving...e--now-a-gop-lawmaker-proposes-a-fix-n1516405

http://www.huffingtonpost.com/2013/01/22/too-big-to-fail-bank-regulation_n_2527799.html

http://www.reuters.com/article/2013/03/14/us-banks-sec-proxy-idUSBRE92D04S20130314

 

[DucatiMonster696]

No, it doesn't. I find no plausible way by which this policy would reinflate the housing bubble to a dangerous extent. Like I said before the problem was fraud, but as others mentioned the securitization process was also a big problem.

Government backing of a few more home loans is exceedingly unlikely to have such an effect.

Labeling it as fraud is your way of minimizing the colossal fuck up that occurred. It was more than just fraud. It was a fundamental breakdown of the entire system in its ability access risk taking along with the willful abandonment major firms from just being able to step away from the massive shit storm risk being built up as they were raking in massive amounts of money from not only low-income borrowers but also groups such as home flippers who ended propping up the bubble and allowing it to grow to such gigantic proportions.

"But hey guys this time, this time everything will be different. Just trust us."

 

[DucatiMonster696]

Sound like to me from reading the article.

It is known that since the housing bubble burst the banks have been erroring on the side of caution for any house loans. Well that pendelum has swung really far to the conservative side. The Obama administration is talking about pushing that pendelum back a little more to the middle.

If you think banks have been conservative, especially with their investments and actions you haven't been keeping up on what they are doing today. They have not learned a damn thing and have continued in many cases repeating the same mistakes of the past along with polishing up on some new tricks, aka London Whale fiasco.

http://en.wikipedia.org/wiki/2012_JPMorgan_Chase_trading_loss

 

[Genx87]

No, it doesn't. I find no plausible way by which this policy would reinflate the housing bubble to a dangerous extent. Like I said before the problem was fraud, but as others mentioned the securitization process was also a big problem.

Government backing of a few more home loans is exceedingly unlikely to have such an effect.

Come on, a few? Right now 80-90% of home loans are backed by the govt according to the article. And that is with supposedly tighter restrictions. This "free" money pollutes the market. Expect it to be abused once the banks are assured they wont lose any money nor be held responsible for making bad loans.

 

[FerrelGeek]

great for the dems leading up to the elections. Bad for them after the crash.

Nope. They'll still blame Bush and get away with it.

Or Obama's just that full of himself that he thinks it'll work this time because HE's the one doing it.

Again, we see the results of having a community organizer as a president. He has no concept of actions yielding consequences.

 

[FerrelGeek]

No, it doesn't. I find no plausible way by which this policy would reinflate the housing bubble to a dangerous extent. Like I said before the problem was fraud, but as others mentioned the securitization process was also a big problem.

Government backing of a few more home loans is exceedingly unlikely to have such an effect.

Unless we get into major defaults from people that should never have received loans. I have no faith in your messiah or his henchmen to do any better that what has been done previously.

 

[airdata]

Fool me once, shame on you. Fool me twice, shame on me....

Too bad I'm not fooled this time.

I'm curious if you have the same attitude about wars w\ iran and or n korea considering the farce iraq was.

 

[Fern]

No, it doesn't. I find no plausible way by which this policy would reinflate the housing bubble to a dangerous extent. Like I said before the problem was fraud, but as others mentioned the securitization process was also a big problem.

Government backing of a few more home loans is exceedingly unlikely to have such an effect.

So, the previous problem involved not only govt backing of loans to high risk individuals, but also fraud and securitization problems.

I have no confidence that the problems of fraud and securitization have been solved/eliminated, so throwing easy govt backed loans to high risk individuals back into the mix sounds the same explosive cocktail all over again.

Are you satisfied that the problems of fraud and securitization have been solved/eliminated?

If so, why? (I.e., what has been actually done to fix those.)

Fern

 

[Exterous]

My sister bought in 2010 and the approval process was a joke. If you can't get approved right now you shouldn't be buying a home.

I can understand some flexibility on the credit score, but people need to be able to scrape together a down payment. If they start giving people separate loans to cover their "down payment" again then game over man.

Agreed - esp the down payment part. We bought our first house near the worst of the banking crisis and were warned we would not get approved for as much as we could have been before the crisis. So when I saw the amount approved I laughed as there was absolutely no way we could have a mortgage near the high end of the approved amount even with the banks being 'cautious'. According to what I have read in the WSJ lending has loosened since then which leaves me feeling that the lending process is loose enough

There should be some flexiability with the requirements. We went to far in one direction in allowing people that had no business getting a home lone to get a lone. However usually when these type of things happen their is a tendency to over correct and go to far the other direction. Just saying that we need to look at where we are at and see if some of the requirements can be relaxed.

I don't know. Housing prices are up which would seem to suggest there are more buyers than previously and I have not seen any articles about people with acceptable credit being turned away. Not saying there aren't any but I don't get the impression that the banks are being overly cautious with their mortgage lending practices

So, the previous problem involved not only govt backing of loans to high risk individuals, but also fraud and securitization problems.

I have no confidence that the problems of fraud and securitization have been solved/eliminated, so throwing easy govt backed loans to high risk individuals back into the mix sounds the same explosive cocktail all over again.

Are you satisfied that the problems of fraud and securitization have been solved/eliminated?

If so, why? (I.e., what has been actually done to fix those.)

Fern

Given the lack of prosecution of the individuals perpetuating the fraud and securitization I would agree. A lot of people made a lot of money off of this and got away with it or a minor slap on the wrist. Why do we believe this won't happen again?

 

[nehalem256]

So, the previous problem involved not only govt backing of loans to high risk individuals, but also fraud and securitization problems.

I have no confidence that the problems of fraud and securitization have been solved/eliminated, so throwing easy govt backed loans to high risk individuals back into the mix sounds the same explosive cocktail all over again.

Are you satisfied that the problems of fraud and securitization have been solved/eliminated?

If so, why? (I.e., what has been actually done to fix those.)

Fern

Securitization isn't a problem. If they had securitized fundamentally sound loans there would have been no problem. The problem is the securitized crap loans (fraud or near fraud probably playing a role here).

But a crap loan is a crap loan whether or not fraud is involved in the approval process.

 

[LegendKiller]

Having worked for a decade in securitization, the issue is *not* securitization. If one were to look outside of RMBS they would see that almost every other asset class did not sustain endemic investor principal loss. Even in times wehre a lot of assets are pushed through the securitization channel there typically isn't the same problems as there was with RMBS.