WSJ headlines and questions for January 19 2011

WSJ headlines and questions for January 19 2011 - from...

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WSJ headlines and questions January 19, 2011. WSJ Headline January 13. Bank Law Hung Up On Down Payments Last year, the U.S. government passed the Dodd-Frank financial reform bill, which requires that banks hold 5% of risky mortgages in their portfolios when they securitize them. As with most provisions of Dodd-Frank, the details are left to the regulators. In this case, the regulators have to define “risky,” and they have to do it by April. Wells Fargo, the nation’s largest mortgage lender, originating about 25% of all residential mortgages, suggests that the standard be set at a 30% down payment. Other lenders are complaining that the risk retention rules would raise rates on loans designated as risky as much as 3 percentage points, and would discourage many lenders
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Unformatted text preview: from making standard mortgages, which typically have much lower down payments. Questions: 1. Why is the government imposing this retention rule? 2. Do you generally agree or disagree that the government should be in the business of deciding the contracts between private parties? 3. Assuming that this is a correct policy, should they set the down payment at 30% or the more traditional definition of a risky mortgage at less than 20%, where lenders typically require private mortgage insurance? 4. Why would Wells Fargo propose such a high limit? 5. Do you believe the claim that this would raise rates by 3 percentage points and cause many standard mortgages not to be made?...
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