So why have the banks returned to responsible lending standards?
It's plain as the nose on your face; because they're on the hook for the losses, that's why. If they could figure out a way to dump the losses on Uncle Sugar (gov guarantees, for example), then they'd be back to their old tricks right now. In fact, they're working out the details for their next big credit heist as we speak. Take a look at this:
"Housing industry leaders and congressional lawmakers are ramping up their push for regulators to resolve a residential mortgage rule without placing strict down payment requirements on borrowers.
"Bankers, real estate agents, home builders and lawmakers got a renewed jolt after President Obama's State of the Union address to press their point that new rules determining a borrower's ability to repay a loan will be the central consideration for obtaining a mortgage." ("Housing stakeholders warn against strict mortgage down-payment requirements," The Hill)
No down payment on government insured loans? You gotta be kidding me. And Obama is on board with this farce?
You bet. Here's more:
"They argue that mortgage lenders will need flexibility in making loans under the new qualified mortgage (QM) rules, and that specific down payment requirements in a still-developing qualified residential mortgage (QRM) rule will hamper home purchases and lock out many qualified buyers.
"Jerry Howard, president and CEO of the National Association of Home Builders (NAHB), said a borrower's ability to repay should be looked at 'holistically' and that a down payment requirement would be the 'antithesis' of that." ("Housing stakeholders warn against strict mortgage down-payment requirements," The Hill)- Advertisement -
Holistic, my ass. Down payments are a proven source of stability. When borrowers have skin in the game, they are much less apt to pack-it-in at the first sign of trouble. Isn't that what we want?
And, here's the funny part: The banks are fighting tooth and nail to avoid the same rules for lending that they use when issuing their own loans that are not government insured. So, when a bank requires 20% down, a decent income and high credit scores; it's a sign of prudent lending. But, when the government does the same thing, then they are limiting "flexibility," being "overly rigid," and (my favorite) "putting a chill on the market."
Presently, the banks attorneys and lobbyists are wrangling ferociously to affect the definition of a Qualified Mortgage, the ruling by the new Consumer Financial Protection Bureau (CFPB) that will determine which loans the government will insure. As of today, the CFPB has excluded a down payment requirement opting instead for the vague-and-ridiculous-sounding "ability to repay." This, of course, greatly increases the chances of another massive credit boondoggle that will end in disaster.
One last thing: The uptick in delinquencies suggests that Obama's blundering mortgage modification fiasco, dubbed HAMP (The Home Affordable Modification Program), was actually a sop to Wall Street, that is, the program was designed as a holding tank for underwater borrowers so the banks could evict them at a time that was convenient for them and their bottom lines. Obama's HAMP was not "can kicking" as much as it was kowtowing to the big money guys who needed to drag out the process as long as possible to avoid bankruptcy. Here's a brief update on the program:
"The U.S. Treasury's mortgage bailout is failing at an "alarming rate," according to a government watchdog ... The Home Affordable Modification Program (HAMP) was launched in early 2009 with the goal of helping 3 to 4 million borrowers avoid foreclosure. So far fewer than one million borrowers are in permanent modifications, and default rates on these modifications are high.- Advertisement -
"Treasury's data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program. As of March 31, 2013, the oldest HAMP permanent modifications, from the third and fourth quarter of 2009, are redefaulting at a rate of 46.1 percent and 39.1 percent." ("The Government's Mortgage Fix Is Failing," Realty Check)
"46 percent" default rate. That's worse than subprime. Hell, that's worse than any batch of loans in history. Obama's got them all beat, even Countrywide. But, that's okay, because it's good for the banks, and that's what matters to Obama.
And, guess what? Now Obama is planning to surpass his own record of failure by launching another bank welfare program more idiotic than the last. Here's the story from DS News: