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And that’s not all the banks are up to. They’re also fighting “risk retention” rules because they don’t want to pony-up the small amount of capital (5 percent of the loan’s value) on high-risk mortgages that go into securitizations. It’s like an insurance company refusing to keep money on hand to pay off claims. If you think that’s fair, then you should probably be a banker. Now get a load of this excerpt from a “Letter to Bernanke on QE3″ from Moe Veissi, president of the National Association of Realtors:
“Reducing mortgage interest rates in general through MBS purchases will have diminished impact if three important rules counter the availability of mortgage credit. As you have noted, mortgage credit is already tight. A recent survey of NAR members indicates that 53 percent of loans in August went to borrowers with credit scores over 740. To put this in perspective, only 41 percent of loans backed by Fannie Mae in 2001 had scores above 740. If the forthcoming Ability to Repay/Qualified Mortgage (QM), Risk Retention/Qualified Residential Mortgage (QRM), and Basel III rules only serve to further tighten credit, the impact of QE3 is likely to be diminished and only felt among those of substantial wealth and pristine credit. In short, those who need access to affordable credit the least.
While the Federal Reserve (The Fed) is no longer the purveyor of the QM rule, we believe there is still time for the Fed to weigh in with the Consumer Financial Protection Bureau (CFPB) and ensure that this rule does not serve to further tighten credit.” (“NAR Submits Letter to Bernanke on QE3″, Mortgage Professional)
How do you like that, eh? So according to Moe Veissi, making the system safer is too expensive. We just can’t afford it. We need to make credit available to people who wouldn’t normally qualify for a loan.
Sure, Moe, what could go wrong? It’s not like we’re going to blow up the financial system by lending too much money to people who can’t repay their debts, right?
In any event, the banks and the special interest groups are trying to unwind the “Ability to Repay” and “Risk Retention” portions of the new regulations, even these are the essential firewalls that protect the general public from another disaster like the Crash of ’08?
If we heap these recent developments together (FHFA changes on “put-backs”, opposition to “risk retention” and “ability to repay”), then we see that we’re fairly close to where we were in 2007 before the two Bears Stearns hedge funds defaulted sparking the downward spiral that ended with the obliteration of Lehman Brothers on September 15, 2008 and the beginning of the Great Depression 2.
The banks are again in a position where they can skim profits off bad loans to every Tom, Dick and Harry that can sit upright and sign on the dotted line. They don’t have to worry about holding capital against their dodgy assets or whether Uncle Sam is going to get fleeced on the bogus $400,000 loan they issued to that unemployed landscaper living on food stamps. No worries. They’ve covered all the bases.
Now if Bernanke can just get that bubble-thing going, they’ll be back in the clover.
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at firstname.lastname@example.org.