paper about MBS

There is an exemption for “qualified residential

Info iconThis preview shows pages 125–128. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: There is an exemption for “qualified residential mortgages”, which has yet to be defined, but most likely means conforming mortgages. While aligning incentives is an admirable goal for the nonconforming mortgage market, as we have argued elsewhere, it was probably not the problem in the financial crisis. As described in Chapter 3, no one can accuse the Godzilla GSEs and their King Kong too-big-to-fail private counterparts from not having had enough skin in the game (but, of course, they did not have enough capital to cover their skin). 67 Moreover, the Act goes on to describe the basis for determining whether the borrower can pay, including typical features such 124 as credit history, income, and their current obligations, as well as income verification and the type of loan if nonstandard (such as variable rate, interest-only, negative amortization, etc.). In light of all the difficulties in trying to manage the mortgage risk at the financial institution level, it is hard to argue that a reduction in predatory lending and higher underwriting standards would not improve the securitization process. But it should be understood that these provisions will almost certainly reduce the availability of mortgage credit and/or increase its price. Nevertheless, there is little doubt that some types of nonconforming mortgages could be economically viable, even at higher mortgage rates. We believe that it would be a shame if the best practices of the subprime market did not re-emerge -- i.e., providing credit to the self-employed who may fall outside the scope of conforming mortgages. Direct stipulation of underwriting standards might straitjacket originators, who through innovative contractual and monitoring mechanisms or simply different credit terms, such as requiring a higher down payment, could provide prudent mortgage finance to niche markets. Nevertheless, almost surely, the Dodd-Frank Act necessitates a smaller mortgage finance market, pushing potential homeowners towards the rental market. And this may not be all that bad. The next chapter discusses the economics of homeownership and, more specifically, the large number of subsidies that are provided by the U.S. government to this market. 125 Chapter 9: Chasing the Dragon “In this context, it’s especially disturbing that the Bush administration has announced that it is cutting back Section 8 housing vouchers, which provide rental assistance to low income families, while easing restrictions on mortgage loans. Low-income families will now be able to get subsidized mortgage loans through the Federal Housing Administration that are equal to 103 percent of the purchase price of a home. Home ownership can sometimes be a ticket to the middle class, but buying homes at bubble-inflated prices may saddle hundreds of thousands of poor families with an unmanageable debt burden.” - Dean Baker, The Nation , August 16, 2004 In 1916 at the University of Frankfurt in Germany, scientists Martin Freund and Edmund Speyer developed the drug, oxycodone, as an alternative to heroin, which had been...
View Full Document

{[ snackBarMessage ]}

Page125 / 151

There is an exemption for “qualified residential...

This preview shows document pages 125 - 128. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online