Can't Get a Mortgage? Here's Why
It's tough to get a mortgage for many people according to this WSJ article:
So banks now play "CYA" (cover you're a_s) and inundate applicants with tons of paperwork and ask tons of questions, all aimed at building a file that's impervious to questioning should that mortgage ever go bad. They don't want to be taking mortgages back in the future.
First, if a bank committed fraud (as the article explains) in selling a mortgage, shouldn't there be more of a penalty than their having to buy the mortgage back from Fannie and Freddie? Wouldn't you think that fraud should be punished so that the bank would not engage in fraud again. Where are the regulators? Shouldn't the bank be prosecuted in some way for committing fraud?
Second, why are Fannie and Freddie only now scrutinizing the loan - after it goes bad? The reason is that they didn't bother to do any due diligence when they bought it. Why? Because the federal government wanted to encourage home ownership. So Fannie and Freddie were expected to facilitate that political goal. And they did that by purchasing loans from banks without checking to see if the loans were reasonably underwritten by the banks.
As for today's applicant's, they're stuck with the mess.The article points out some ways people have tried to overcome the hurdles and get their mortgages.
(You can read the rest of the article by clicking HERE.)
If you've ever wondered what economists mean by the phrase "misallocation of capital," this is a good example of that. If you've ever wondered how government causes misallocation of capital, this is a good example of that too. Politicians messed around with the normal functioning of the economy to pursue political goals. Convincing Americans that we should all own a home was a dumb idea to start with, but it sounded good to enough thoughtless Americans, and politicians found their mark for this particular - let's call it what it was - scam.
Of course, I don't see any politicians taking responsibility or being brought up on charges or even being mentioned in the press. The only targets of questioning past practices are the banks - as well they should be.
The system was broken first by politicians looking to curry favor, then by bankers looking to make a quick buck. And it doesn't look much like the system has really been put back together in any meaningful way so far. All we're seeing now is mortgage rates as low as they've ever been - which is, again, manipulation of the mortgage market by politicians to make it seem like they're doing something to fix the economy - i.e., they are again currying favor with voters.
Does it make any sense to think that politicians screwing around with the mortgage market this time around will have a better result than when they screwed around with the mortgage market last time?
Burdened by Old Mortgages, Banks Are Slow to Lend Now
The article explains that mortgages that the banks already approved and sold to either Fannie Mae or Freddie Mac are now being sent back to them by Fannie and Freddie. When mortgage go bad, Fannie and Freddie take a look at them to see if the bank that sold them the mortgage engaged in fraud, or if their underwriting was sloppy. The bank has to take the mortgage back and pay Fannie or Freddie.So banks now play "CYA" (cover you're a_s) and inundate applicants with tons of paperwork and ask tons of questions, all aimed at building a file that's impervious to questioning should that mortgage ever go bad. They don't want to be taking mortgages back in the future.
Loan officers say their job used to be fairly straightforward: Determine that a borrower could reasonably repay the loan. Today, they say the goal is to shield themselves from a put-back. This means asking borrowers for reams of documentation—tax returns, bank statements, pay stubs, and appraisals—in order to deliver loans that can't be questioned.But what's wrong with this picture?
First, if a bank committed fraud (as the article explains) in selling a mortgage, shouldn't there be more of a penalty than their having to buy the mortgage back from Fannie and Freddie? Wouldn't you think that fraud should be punished so that the bank would not engage in fraud again. Where are the regulators? Shouldn't the bank be prosecuted in some way for committing fraud?
Second, why are Fannie and Freddie only now scrutinizing the loan - after it goes bad? The reason is that they didn't bother to do any due diligence when they bought it. Why? Because the federal government wanted to encourage home ownership. So Fannie and Freddie were expected to facilitate that political goal. And they did that by purchasing loans from banks without checking to see if the loans were reasonably underwritten by the banks.
As for today's applicant's, they're stuck with the mess.The article points out some ways people have tried to overcome the hurdles and get their mortgages.
(You can read the rest of the article by clicking HERE.)
If you've ever wondered what economists mean by the phrase "misallocation of capital," this is a good example of that. If you've ever wondered how government causes misallocation of capital, this is a good example of that too. Politicians messed around with the normal functioning of the economy to pursue political goals. Convincing Americans that we should all own a home was a dumb idea to start with, but it sounded good to enough thoughtless Americans, and politicians found their mark for this particular - let's call it what it was - scam.
Of course, I don't see any politicians taking responsibility or being brought up on charges or even being mentioned in the press. The only targets of questioning past practices are the banks - as well they should be.
The system was broken first by politicians looking to curry favor, then by bankers looking to make a quick buck. And it doesn't look much like the system has really been put back together in any meaningful way so far. All we're seeing now is mortgage rates as low as they've ever been - which is, again, manipulation of the mortgage market by politicians to make it seem like they're doing something to fix the economy - i.e., they are again currying favor with voters.
Does it make any sense to think that politicians screwing around with the mortgage market this time around will have a better result than when they screwed around with the mortgage market last time?
Comments