The conservative whipping boy of the 2008 was Fannie Mae and Freddie Mac.** The GOP did everything in their power to steer focus away from the deregulation of Wall Street banks. They blamed people taking on more risk than they could afford. They didn’t blame the banks for providing the mechanisms to attract people into the market in the first place. Mechanisms like no doc loans, adjustable rate mortgages and no down payment loans were created by the Wall Street banks in order to increase customers into the housing market.
(** Fannie Mae and Freddie Mac are publicly traded companies on Wall Street)
Deregulation made this obtainable and possible. In a free market, banks should be allowed to offer what ever they want in order to attract consumption. The free market also allows mergers and acquisitions, thus creating TOO BIG TO FAIL.
If progressive policies were in place, all these financial mechanisms would be illegal. In fact, if progressive regulations were in place, too big too fail banks would also be illegal making this collapse of 2008 not even part of our history. There was a reason why there weren’t any bank bailouts from the 1940s to 1980s, it was progressive policies that were put in place by FDR and upheld by every administration until Reagan.
The 2008 collapse spurred the Dodd-Frank bill, and while this bill does not address as many problems as I and many other progressives would like, it does address financial mechanisms that attract people into the market that they would otherwise not be in. The Dodd-Frank bill creates a regulation mandating 10-20% down payment on mortgages.
The new regulations would require mortgage originators to retain capital reserves equal to 5% of all but the safest mortgages. The mortgages that are exempt from the risk retention guidelines are termed “qualified residential mortgages” or QRMs. In order to qualify as a QRM, there must be a down payment of at least 20%. Additionally, anyone who has ever had a 60 day delinquency in their credit history will not qualify for a QRM.
But not to the surprise of progressives, Wall Street and the Heritage Foundation are pushing back against this regulation. The Heritage Foundation states,
The QRM is part of a risk-sharing provision in the Dodd–Frank financial regulation bill that was supposed to require lenders to do a better job of underwriting mortgages.
The housing market is still weak,and federal regulators are considering a regulation that could make matters even worse. Known as the Qualified Residential Mortgage (QRM) rule, the draft rule could have the effect of requiring many home buyers to have at least a 20 percent down payment in order to qualify for a best interest rate mortgage. In addition to making it harder for qualified consumers to obtain loans, the proposed regulation would preserve the roles of Fannie Mae and Freddie Mac.
After complaining about too many people being able to obtain mortgages too easily through Fannie Mae and the Community Reinvestment Act, Heritage is now complaining that there is TOO MUCH regulation and might slow down any speed in the housing market recovery. 20% down is NOT unheard of, that was the percentage required many years ago, until the conservative version free market policies were enacted 30+ years ago.
We also have Wall Street complaining about this new regulation on CNBC. Here is Joseph Murin, The Collingwood Group chairman speaking on this issue.
qrm is going to be devastating to the marketplace if it comes into being as it’s been written. qualified residential mortgage where they require every home owner to have 20% of their own cash in the mortgage
Adjustable rate mortgages were also another mechanism used by banks in order to lure customers into the housing market in order to create a more profitable venture without much risk after they sell the mortgage loan itself.
Wall Street is beginning to push for more ARMs again as you can see in this video via CNBC:
The vice President of hsh.com admits ARMs are risky but we should essentially take the risk if we think we can handle it. Really? Wasn’t that the problem to begin with, people thought they could handle it?
Do the conservatives really want another housing bubble in order to fatten the wallets of the very rich again with the risk of another bubble collapse? Once the collapse happens, the conservative will be quick to blame government when in actuality, it was their deregulations that caused it. It’s time to protect the public and implement progressive policies that protect the people. It worked for an entire generation from the 40s until the 80s, it can work again.