Subprime Regulatory Fallout [Housing Tracker]

Subprime Regulation 

What The Fed Isn’t Fixing.  “The Fed's own report states that 60% of loans were originated through mortgage brokers in the last several years, [whose] “…interests may diverge from, and conflict with, their own interests." Particularly problematic [were] yield spread premiums, which gave brokers higher compensation for placing a consumer in a higher-interest, riskier loan. Yet… the Fed withdrew its proposal for even a modest rule requiring brokers to disclose whether they were getting a premium… Study after study showed that from 55% to 61% of borrowers had… credit scores to qualify for traditional, fixed-rate home loans but were steered into riskier subprime loans. Why? In part because mortgage brokers [benefited] that way.”  (LA Times Opinion, July 16^th)

US SEC: More Than 4 Dozen Subprime Cases Underway. “SEC Chairman Christopher Cox: Securities regulators have more than four dozen subprime investigations under way that involve subprime lenders, investment banks, credit rating agencies and insurers. The investigations also involve banks and broker dealers who sold mortgage-backed securities to the public… The SEC is focused on whether lenders disclosed risk profiles of underlying loans, whether they valued their portfolios appropriately and whether they made adequate risk disclosures to investors.”  (Reuters, July 15^th)

Mortgage Shakeup Won't Slow Subprime Crisis, Economists Fear.  “Economists say a shakeup of the mortgage industry will do little to quell the subprime contagion that should batter the U.S. housing sector and global credit markets well into next year. The Fed Monday approved a set of stricter mortgage rules [that] were first proposed in December, 2007, but will not be enforced until Oct. 1, 2009… Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez: While tougher regulations were welcome, they would have little impact on the current market, where tight credit conditions had already slashed subprime lending. Furthermore, he said the regulations would not stop the housing market's current decline.” (The Windsor Star, July 14^th)

Fed Oks Rule Forcing Lenders To Verify Subprime Income, Limit Penalties. “The Federal Reserve Board of Governors this morning approved tighter mortgage regulations that it hopes will help tame the wild subprime lending market. The rule approved this morning, as expected, requires lenders to verify the income of subprime borrowers before lending to them and limits prepayment penalties on these subprime loans. A summary of the rule released this morning said these new provisions in the 'Truth In Lending' regulations would apply to 'virtually all' subprime mortgages, and would 'generally exclude' prime loans.”  (Thomson via Forbes, July 14^th)

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Comments

[Jimmy Lathrop:]

The new loan rules effectively closes the door on banks most profitable instrument. What is going to replace the no income no document loan? Tune in to this website in 2010 for the answer.

2008 Jul 16 07:44 AM

[rm:]

I love it...

[The SEC is focused on whether lenders disclosed risk profiles of underlying loans]

... as if that's going to make anyone whole on their "investment."

[the regulations would not stop the housing market's current decline.”]

Don't tell that to our Congress.

[The rule approved this morning, as expected, requires lenders to verify the income of subprime borrowers before lending to them]

Oh, good! So, they're preventing them from doing what they already weren't doing anymore... that should put a stop to this mess.

2008 Jul 16 09:18 AM

[gordon:]

Ask yourself, as one Senator did in the hearings, why not effective til Oct 2009? Is it because they expect that to interfere legally with unloading all these loans on FHA/Fannie/Freddie between now and then?

2008 Jul 16 01:41 PM