Freddie's new rules

[semtex]

"Under Freddie's new rules: If a subprime borrower wanted to buy the U.S. median-price home at $210,600 with a two-year ARM, the buyer would have to qualify not only at the starting monthly payment of $1,619, at 8.5%, but also at the maximum payment of $2,412 a month, at 13.5%. "

It will kill ARM completely. So now we have more inventory, fewer buyers, house price a free fall ahead?

[d]

doesn't seem unreasonable to me that one would need to qualify at the maximum payment ...

[jazz4cash]

I thought it was the fully indexed rate, not the maximum rate.

[brewer12345]

It won't make much difference because Freddie never really bought many subprime loans anyway. But dozens of subprime lenders blowing up and the entire world backing away from them will dry up the flow of funds. I saw a presentation today that suggested that a halt in the subprime market could remove something like 1 in 6 buyers from the market.

[d]

to the extent that any of those (1 of 6) shoudn't be buying in the first place, we (and they) are all better off.

[brewer12345]

Quote:

Originally Posted by d to the extent that any of those (1 of 6) shoudn't be buying in the first place, we (and they) are all better off.

Maybe, but what does that mean for housing prices and the economy? Nothing good, at least in the short term.

And if someone has a rough patch, should they never be given the chance to carry a mortgage and possibly fix their credit?

[samclem]

Quote:

Originally Posted by brewer12345 And if someone has a rough patch, should they never be given the chance to carry a mortgage and possibly fix their credit?

Not with any kind of government guarantee/support. If a private lender wants to take the risk of loaning money to them, that is fine with me.

[brewer12345]

Quote:

Originally Posted by samclem Not with any kind of government guarantee/support. If a private lender wants to take the risk of loaning money to them, that is fine with me.

Haaaaaahahahahahahahahahahaha....

So you are ready to dissolve the FDIC now? Or do you not understand our banking system?

[d]

Quote:

Originally Posted by brewer12345 Maybe, but what does that mean for housing prices and the economy? Nothing good, at least in the short term.

the problem now being experienced is largely a result of the excesses of the past ... which would to some extent have been avoided under more stringent criteria. i don't think, and would guess that you would agree, that prolonging a bubble would be good. ( ... and it's not as though prices have fallen off a cliff.)

Quote:

And if someone has a rough patch, should they never be given the chance to carry a mortgage and possibly fix their credit?

not sure where this is coming from. ??

[jazz4cash]

Quote:

Originally Posted by brewer12345 Maybe, but what does that mean for housing prices and the economy?

...........maybe double digit gains in housing prices are not sustainable without artificial stimulus like risky mortgages?

Quote:

Originally Posted by brewer12345 And if someone has a rough patch, should they never be given the chance to carry a mortgage and possibly fix their credit?

Arghhh....once upon a time if y0u hit a rough patch, you had to fix your credit FIRST, then you could carry a mortgage.

[brewer12345]

Quote:

Originally Posted by jazz4cash Arghhh....once upon a time if y0u hit a rough patch, you had to fix your credit FIRST, then you could carry a mortgage.

I find that the two tend to dovetail.

[samclem]

Quote:

Originally Posted by brewer12345 So you are ready to dissolve the FDIC now?

That would be fine, too. Of course, federal insurance has never caused problems before, right? (except for that little burp a few years ago)

People want to borrow money, other people want to lend money. If the risks are apparent to both parties and there's total transparency, then the govt should stay out of it.

[brewer12345]

Quote:

Originally Posted by samclem That would be fine, too. Of course, federal insurance has never caused problems before, right? (except for that little burp a few years ago) People want to borrow money, other people want to lend money. If the risks are apparent to both parties and there's total transparency, then the govt should stay out of it.

On the whole, I much prefer the occasional taxpayer bailout to a revisit of the Great Depression. And I say that as an economist and a taxpayer that pays way more than the average income tax.

[Gone4Good]

Quote:

Originally Posted by brewer12345 And if someone has a rough patch, should they never be given the chance to carry a mortgage and possibly fix their credit?

I don't think that is the intent, or the result, of the new rules. It seems self evident that banking standards should require the ability to repay the loan as a minimum hurdle for borrowing. If the loan has payment adjustment features, those features should be considered when determining suitability. Every security broker in the country is required to determine whether a particular investment is suitable for his client before selling it to them. With mortgages becoming more complicated, similar suitability requirements make sense for lenders.

And besides, if lending standards become more stringent reasonable, people will just have to limit their housing consumption to properties that they can actually afford . . . heaven forbid!