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Bugs.
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AuthorPosts
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May 22, 2006 at 9:28 AM #6629May 22, 2006 at 9:32 AM #25781
powayseller
ParticipantEliminate stated income loans.
Qualify borrower of an ARM based on the what the payment will be if interest rates go to 10%.
Raise minimum FICO score requirements.
You know who’s to blame for all this: the investors who buy these products from the lenders. If investors demanded a proper risk premium for loaning $500K to a 630 FICO borrower with stated income, then that person wouldn’t qualify.
The Q is: why are global investos gobbling up these products? As long as there is demand for these loans, they will be made. (Like pornography, drug trade, and illegal immigration – demand fuels the trade, not legislation.)
May 22, 2006 at 9:44 AM #257844plexowner
ParticipantPerhaps there is so much liquidity sloshing around the globe today that a large percentage of is HAS to flow into mortgage related securities.
The US isn’t the only country with the printing presses running 24/7.
Global liquidity is increasing at about a 10% per year rate.
This tremendous pumping of liquidity is starting to show up in the inflation numbers.
Last week’s inflation numbers show about a 7% yearly rate.
May 23, 2006 at 6:57 AM #25810sdduuuude
ParticipantMore rules about what I can and can’t do with my money are not what the market needs.
May 23, 2006 at 8:07 AM #25814powayseller
ParticipantYou can say the same thing about drugs: more rules about which drugs I can or cannot take is not anyone’s business. Why shouldn’t heroin be legal? Why should vicodin be available only by prescription?
Sometimes, laws are made to protect society, even if they quell an individual’s choice.
May 23, 2006 at 8:47 AM #25818Anonymous
GuestStated income loans serve a purpose for self-employed borrowers. They should, however, be more difficult for W-2 employees to obtain.
May 23, 2006 at 8:53 AM #25819powayseller
ParticipantMy understanding is that traditionally stated income loans were only for the self-employed. Their loan approval however depended on their assets. Today’s no-doc loan doesn’t require proof of assets, right?
The source of the problem is the global liquidity and that investors were seeking higher returns when global interest rates were so low. The Fed often puzzled about the low risk premia demanded by investors. If investors had demanded a proper risk premium, shouldn’t they have demanded at least 3-5% above the market rate for anyone with 0% down and no documented income? The investors who took on these loans deserve what comes their way. I only feel sorry for the unsuspecting homeowners, many of whom still believe we have only a 20% drop.
May 23, 2006 at 12:55 PM #25822Bugs
ParticipantThe rules in question have nothing to do with how you handle your money. You’re welcome to do what you like with it.
They have to do with how the banks underwrite the loans that are ultimately insured by the taxpayers. When the taxpayers get involved it goes from being merely commerce and ventures into the public domain. These rules are in place to protect the public’s interest, which in the case of the mortgage markets is substantial.
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