Mortgages Without Risk, at Least for the Banks

[n2doc]

By FLOYD NORRIS
Published: November 28, 2013


There was no single cause of the financial crisis, but a chief one was surely the way mortgage loans were made by people who believed they had no reason to care if the loan was repaid.

That was why the Dodd-Frank financial overhaul law included risk retention — called “skin in the game” — as a major reform. For all but the safest loans, someone connected to the loan had to keep a stake in it. If such a loan went bad, then that lender would suffer along with those who bought securities containing it.

“To me,” said Barney Frank, the former chairman of the House Financial Services Committee and co-author of the law, “the single most important part of the bill was risk retention.”

But it now appears that section will be rendered moot as multiple regulators give in to pressure brought by an odd coalition to classify virtually every mortgage as exempt from the risk retention law.

That coalition includes large parts of the banking industry, which seems to have no desire to stand behind its loans, as well as consumer advocates and the housing industry. The latter groups say they are worried that poorer people will be unable to obtain loans if all loans cannot be securitized.

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http://www.nytimes.com/2013/11/29/business/mortgages-without-risk-at-least-for-the-banks.html?pagewanted=all

[dixiegrrrrl]

1. Think for a minute what this is saying:

"The latter groups say they are worried that poorer people will be unable to obtain loans if all loans cannot be securitized."

translation:
"If the banks cannot pass on the fraud, they will not make loans to people who cannot pay them"
or
more succinctly," people who cannot afford to buy a house will not be able to buy a house."

Also means that people who cannot afford to buy a house will not lose the house, and their credit score, when the market turns on them.

taht's the way it used to be before the 1980's, I think. Maybe a bit earlier.
You had safeguards in the system so that you had to qualify for a loan based on your income, creditworthiness =ability to pay the loan.

But then the banks learned they could pass along shitty loans wrapped in shiny paper to investors and created the whole rip off assembly line.

I was in Cal. during the housing bubble of 2000 on , and watched, and heard, people buying houses, putting a 2nd mortgage on them, taking the 2nd mortgage out in cash, and being able to flip the house easily and pay off both loans, then buying another one, flipping it, etc. each time for more of a profit.
2 friends tried to talk us into doing the same.
It worked just fine....till it didn't.

Now the next part of the same bubble is ready to pop.
All those 2nd mortgages that were on a 10 year E-Z loan system, with interest rate resets coming due.
Monthly mortgage payments are going to jump, and the people who used their house for an ATM machine via the 2nd mortgage,
are going to be in trouble.

And now the banks want to repeat teh same game, via no risk retention.

Exactly what happens when there are NO criminal consequences for fraud.

[n2doc]

2. Ponzi schemes work great for the early 'investors'

And the housing market was turned into one huge Ponzi scheme.

The final blow comes when the foreclosed house is sold for cheap to investors, who then rent it back out. Everyone makes money except the renter and the foreclosed upon.