Should banks have to determine whether or not people can repay their mortgage loans?
That’s a requirement in the Dodd-Frank financial regulation bill.
That sounds silly to me. Banks that make mortgage loans that are not repaid are soon going to be out of business.
Almost all of the irresponsible lending banks have made to credit-risky customers have come precisely as a result of government regulation. Politicians and bureaucrats have forced banks to extend loans to blacks and latinos with poor credit.
Earlier this year, the Federal Reserve, the Federal Deposit Insurance Corporation, the comptroller of the currency, the Securities and Exchange Commission, the Federal Housing Administration, the Federal Housing Finance Agency and the Department of Housing and Urban Development all agreed on what makes a mortgage most likely to perform well. They examined how different types of loans defaulted, and the attributes of the borrowers in question. Then they invited the public to comment on their proposal; that comment period ends tomorrow.
One attribute of safer loans, the regulators found, was that homeowners had made a down payment of at least 20 percent. Another was that their housing debt did not exceed 28 percent of their monthly income, and that their total debts did not exceed 36 percent.