CEPR - Center for Economic and Policy Research


En Español

Em Português

Other Languages

Home Publications Blogs Beat the Press Post Tries to Scare Readers About Mortgage Availability

Post Tries to Scare Readers About Mortgage Availability

Saturday, 14 December 2013 08:38

The Washington Post ran a piece implying that new rules on mortgage issuance will exclude large numbers of potential homebuyers from the market. The piece fundamentally misrepresented the issues. The rules cover the mortgages that can be placed in mortgage backed securities without banks being required to keep a 5 percent stake.

If a bank believes that a mortgage is in fact a good mortgage, in spite of not complying with the rules, then keeping a 5 percent stake carries minimal cost. Furthermore, banks have typically held 10-20 percent of their mortgages. If they consider a mortgage to be a good mortgage, then they would not mind holding it as an asset for the life of the mortgage. It is likely the case that mortgages that do not comply with the new rules will carry a higher interest rate, but that is appropriate for mortgages that face a higher risk of default.

In short the real issue here is simply that higher risk buyers are likely to pay higher interest rates on their mortgages. This is what would be expected in a market economy. 

Comments (3)Add Comment
It is even worse than that
written by EMichael, December 14, 2013 8:39
Almost none of the rules that the writer believes will reduce lending are new. They have been around for a long, long time.

As I read the article I wondered exactly how much expertise the writer has in mortgage lending, but nothing was stranger than the complaint about the dollar limits on FHA lending(which have always been a part of the deal) in DC.

Somehow I doubt that limiting FHA mortgages to $625,000 houses in DC is a big deal, nor is it in any way in conflict with the actual purpose behind FHA lending.

Figure a $600,000 FHA 30 year PI payment would be around $4000 a month, the buyer would need to have a gross income of around $160,000 a year to qualify.

And this person can't save a down payment?
QM, not QRM
written by Austin Kelly, December 14, 2013 9:38
The WaPo article is talking about the QM rules promulgated by CFPB. It is the QRM rules put out by the interagency group that have the 5% skin in the game requirement, not the QM rules. Because the QRM rule incorporates the QM rule, a lender that makes a non-QM mortgage would have to hold 5%, but the bigger deal is that a non-QM mortgage does not get a safe harbor, and will carry a higher interest rate because it has higher litigation risk. I agree with Dean's general point, that it's appropriate that higher risk loans have higher rates, but I think Dean is only looking at the smaller of the two big drivers of rate increases for non-QM loans.
but why would they worry about this?
written by Blissex, December 15, 2013 2:16
Business interests and their friends love house buying and mortgages because there was a study in the 1980s that showed that voters with a house, shares, cars and guns voted much more frequently to the right of people of the same income and class who rented, had pensions, used public transport, and objected to guns. The issue is psychological: being invested in assets makes people both haver a more rentier-oriented, selfish mindset, and having a mortgage makes them more fearful of their employers.

Plus old-money big rentiers are keen to see asset prices boom thanks to new-debt petty rentiers demand, so that they can sell out in one of the hugest pump-and-dump operations in history, with boiler rooms operated by the mortgage GSEs and their accomplices in major banks.

Plus, many business rentiers make an enormous amount of profit and take giant bonuses by selling and trading mortgages by under-reserving against related risks, because business-interest sponsored governments eventually cover those risks with free money.

Therefore anything that slows down the speculation in asset prices is enemy action and must be attacked.

Write comment

(Only one link allowed per comment)

This content has been locked. You can no longer post any comments.


Support this blog, donate
Combined Federal Campaign #79613

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.