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Lenders did assume risks even if they sold them. They made the loans, sold them, and still had to pay recapture fees or buy backs when loans went bad. You don't see any of those A- and BC lenders still around do you?
The largest cause of their disappearance was because they got stuck holding the stinking corpse that would have been their next securitization.
Quote:
Originally Posted by rcarrillo
Also, if lenders were required to hold onto loans.... it would lead to new markets for CDS (credit default swaps) and other "solutions" to add liquidity. Lenders would say "we aren't selling the loans" but invent other methods to "sell them". Much like futures tradings and commodities markets... they find ways to trade products years before they are even made.
Using this logic, we shouldn't have any laws because people are going to figure out how to get around them.
Quote:
Originally Posted by rcarrillo
The liquidity gained by selling loans on the secondary market is a good thing. You could easily say that if the secondary market had set up tougher standards for the loans they bought, isn't the same thing achieved? Lenders can't sell loans if there aren't buyers for it.
Agreed as to the first sentence. The problem alluded to in the second sentence wasn't standards, but execution. It would be incredibly inefficient for the secondary market to perform all of the due diligence that the originating lender does, so to a large extent it has to rely on information provided by the originator. It only makes sense that if the originator is going to continue to have liability for its due diligence that it will exercise more prudence.
Now that the media has softened up the masses into believing "all is doom" they will go quietly into the New World Order where home should NEVER be owned, personal retirement accounts are VERBOTEN, credit is EVIL, and people who sat on the sidelines will run the re-education camps...
Agreed as to the first sentence. The problem alluded to in the second sentence wasn't standards, but execution. It would be incredibly inefficient for the secondary market to perform all of the due diligence that the originating lender does, so to a large extent it has to rely on information provided by the originator. It only makes sense that if the originator is going to continue to have liability for its due diligence that it will exercise more prudence.
I agree completely.
There's no question that this passing off bad loans wouldn't be possible if there were no buyers. But these loans were securitized by slicing and dicing them in so many different ways and then given bogus AAA ratings that the end buyers could not have easily determined how bad these securities were.
I think that if the originators had SOME liability by being forced to keep many of their own loans that they would certainly not have made so many of them.
No matter what I think during 2009 lending laws will really change.Everyhting from home mortgages to credit cards.
I think that is an understatement.
My guess is that derivatives and speculative investing will be severely regulated or not permitted at all.
Between the run-up in the price of crude oil the past couple years which appears to be mainly due to speculators who weren't required to take delivery of their purchases and the current mortgage meltdown, the regulators are going to tighten the screws a lot more - mainly from the outcry of the masses.
So basically... to stop housing prices from going up and then crashing... you are proposing to tighten lending standards so housing prices crash to where lenders will lend
The solution basically gets you to the same conclusion, housing prices need to come back down. Which is the case.
Lenders did assume risks even if they sold them. They made the loans, sold them, and still had to pay recapture fees or buy backs when loans went bad. You don't see any of those A- and BC lenders still around do you?
Also, if lenders were required to hold onto loans.... it would lead to new markets for CDS (credit default swaps) and other "solutions" to add liquidity. Lenders would say "we aren't selling the loans" but invent other methods to "sell them". Much like futures tradings and commodities markets... they find ways to trade products years before they are even made.
The liquidity gained by selling loans on the secondary market is a good thing. You could easily say that if the secondary market had set up tougher standards for the loans they bought, isn't the same thing achieved? Lenders can't sell loans if there aren't buyers for it.
A lot of things need to get back to basics and I'm sure some of them will, but probably not enough:
* A lot of these exotic derivative products need to go away as their long-term effects are not fully understood and a lot of confusion exists even at the "expert" level in the financial industry. Lots of people see different pieces of the pie that work for them, but not many see the whole pie overall.
* Mortgage standards need to fall back to more conservative requirements: 5%-20% down, solid FICO score, full documentation and full income verification fixed loans, limit purchase price to no more than 2.5x-3x income. No Subprime; No Alt-A; No Interest-only unless its an investment property.
* Speculative investment needs to be reigned in across the board - particularly in the commodity markets. Traders should be required to take delivery of their commodity holdings and not keep them only on paper. I know gas consumption has dropped over the past year, but I don't think it's dropped enough to cause the price of crude to swing from $147/barrel (July '08) to $37/barrel (Dec '08) in 5 months.
* CEO's need to be reigned in and stop acting like spoiled little brats who deserve a massive pay-off to be "fired". Boards of Directors need to be held accountable for the decisions the CEO's they appoint make and justify the ridiculous CEO salaries being tossed around.
* Last, but not least: People need to be more considerate of each other. Selfishness and greed are what's killing our economy on many levels.
Are you basing this on anything, or is it just a feeling?
I base it on what I see so far in areas like auto loan ;and even the changes so far in mortgage loans. Then there si also the congressional hearings especially the ones recently on Fannie Mae and mac after the two quarter of refi's. Ask any person you know that sells automobile and he can tell you what the disclaimer;well quailfied buyer means in the auto commercials.
if banks had to hold on to these loans wheres the new money loaned out for the future mortgages coming from? they recycle the money by selling the loans, taking a profit on the sale and re-loaning the money
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