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Imagine that mortgage originators were required to hold on to most or all of the loans they originated instead of being able to originate junk loans which can be immediately sold off.
Also imagine that even if originators could sell off loans that they were required to hold on to them for, say, 3 years.
Would these requirements ALONE been sufficient to avert this big housing bubble?
The loan originators would have merely aged loans with teaser rates, sold them to Fannie or Freddie as well as any MBS slicers and been in the same position we are now...
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Mortgage money would have been incredibly hard to obtain if there were no secondary market for mortgage loans. Would it have eliminated the bubble? Probably, but then again almost no one in the US would have been able to buy a home.
The loan originators would have merely aged loans with teaser rates, sold them to Fannie or Freddie as well as any MBS slicers and been in the same position we are now...
So your point is that merely requiring them to hold on to the loans for a number of years wouldn't have made a difference because they would have eventually sold them off.
But my point was what if loan originators could NOT have sold them off whether to Fannie, Freddie or any other MBS slicer. Maybe they could have only sold off half and had to keep half.
And/Or
They had to hold on to them long enough such that the originators would still be holding them a year or so AFTER the teaser period was over. So no selling loans until at least a year AFTER "introductory" rate period is over.
Either way, the point is that if the originators had to assume at least HALF the risk, then I can't believe that they would have been so willing to lend to people they anyone would have been able to see could not have fulfilled the loan for beyond the teaser period. And that being the case, the bubble would have been averted.
Mortgage money would have been incredibly hard to obtain if there were no secondary market for mortgage loans. Would it have eliminated the bubble? Probably, but then again almost no one in the US would have been able to buy a home.
I've heard this argument before and am not convinced. If lending standards were tight then housing prices would simply have to come down the point where lenders were willing to lend. At the very least if mortgage originators had to hold on to, say HALF (or at least a third) of their loans, then it would still have achieved the effect of providing more credit while forcing lenders to scrutinize loans because they'd have to assume at least some risk.
It is like that SNL skit "What if Superman worked for the Nazi's", isn't it?
Who really cares. You can't travel back in time. You can only look forward and try to NOT make the same mistakes, not live in some geek fantasy world where you dream up alternative make-belive...
I've heard this argument before and am not convinced. If lending standards were tight then housing prices would simply have to come down the point where lenders were willing to lend. At the very least if mortgage originators had to hold on to, say HALF (or at least a third) of their loans, then it would still have achieved the effect of providing more credit while forcing lenders to scrutinize loans because they'd have to assume at least some risk.
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.
Mortgage money would have been incredibly hard to obtain if there were no secondary market for mortgage loans. Would it have eliminated the bubble? Probably, but then again almost no one in the US would have been able to buy a home.
Sorry, but my BS alarm went off listening to the "almost no one would own a home" nonsense. If homes would be 50-80% off (something that would be a no-brainer without the existence of a secondary market, esp. one like Freddie/Fannie where they could be leveraged 25 to 1), MANY savers would've been buying homes.
No regulation is necessary to force lenders to hold their loans, as we WILL be returning to "it's a wondeful life" pre-ww2 standard simply by free market forces overwhelming the government attempts to "fix" the problem. It might take a little while, but I certainly look forward to that inevitability.
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