I read an article today that got my ire up.
It was an article about the new risk rules that the FDIC is imposing on banks. Here is a short insert from the article:
The FDIC today revealed a new set of rules that would implement a provision of the Dodd-Frank financial reform law mandating that banks maintain at least 5 percent of the risk of mortgage securities they package.
Banks had pushed for regulators to adopt an expansive definition of the "qualified residential mortgage" that would be exempt from the requirement.
Regulators rejected the most expansive versions of a qualified residential mortgage, which would have exempted virtually every mortgage that banks are now making. Instead, only very conservative, traditional mortgages will qualify.
Many lawmakers believe that the ability of banks to distribute the risk of mortgages to investors led to loose underwriting, bad loans, and contributed to the severity of the financial crisis.
The rule proposed today would only exempt securities entirely composed of very high quality home loans. The tests for quality include a requirement for a 20 percent down-payment, a maximum loan to value ratio of 80 percent, a very strong borrower credit history, and a low ratio of borrower debt-to-income. No interest-only loans are allowed, and adjustable-rate mortgages are strictly limited.
The rules are so strict, in fact, that a single loan to a homebuyer who had missed a single credit card payment in the past two years could disqualify a bundle of thousands of mortgages. Such loans would have to be excluded from the securitization.
So you miss one credit card payment in two years, for whatever reason, and there goes your home loan.
It would appear to me that this is just another step being taken by the government and by the banking community to make sure that they only build a mortgage for the best qualified and wealthiest borrowers. I understand the scrutiny by the banks but aren't they putting the cart before the horse. I mean, it was our lending community that offered so many loan instrument a few years back, so that "anybody" could get financed, that helped tank our industry and now they're pulling this.
It just keeps getting better!
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