Much more skin in the game will be exactly what the housing crisis has to cease

Weak financing standards created the real estate bubble; that resulted in the housing crisis, which in turn resulted in the property foreclosure crisis. The chairman of the Federal Deposit Insurance Corporation (FDIC) thinks that the federal government has not learned from its mistakes yet. The financial reform debate ended in no requirement of adequate down payments on home loans. Subprime lending will probably happen again, according to federal housing agencies. Numerous think that the Federal Reserve is really hurting the crisis. They think the real solution to the crisis is to let natural consequences and correction takes place. Resource for this article – More skin in the game a key to preventing another housing turmoil by Personal Money Store.

What do we want; skin in the game or loan performance?

Federal regulators should tighten lending rules for home mortgages in the United States, according to Sheila Bair, chairman of the FDIC. ”Common sense” rules were the suggestion Bair maid to CNBC. These rules would contain a larger down payment on homes when also making sure the borrower can prove to be able to pay back the mortgage. She said there was a strong correlation between “skin within the game” and loan performance. The more cash down a borrower is required to pay, the less likely they can be to walk away from the house. Stricter income documentation, criteria to repay higher and more skin in the game will help move forward from the housing situation.

Hoping for subprime lending redux

Weak lending standards brought down the economy, however the government nevertheless doesn’t get it, as outlined by Edward Pinto at Bloomberg. The Obama administration and Congress certainly don’t want to fix the broken underwriting since last July the Dodd-Fran bill was signed into law, writes Pinto. There was no amendment added to the financial reform bill saying that a minimum down-payment would be required with a credit history consideration and a “prudent underwriting” standard added. This made it possible for low income borrowers with low credit scores to have homes accessible to them. Pinto said the brand new policies are riskier than those resulting within the Fannie Mae and Freddie Mac taxpayer bailout.

Dealing with the problem

The current government reaction to the housing crisis will extend today’s troubles to the future, as outlined by Bill Bonner at the Christian Science Monitor. Bonner states the government ignores the issue by just giving out money and credit too numerous who don’t deserve it. The United States of America financial system is holding hundreds of billions in mortgage debt that probably will not be repaid. The Federal Reserve is saying the mortgage debt it is holding on to is an “asset..” Bonner thinks that market correction is the real solution. The government is just trying to stay from that. He thinks the government will continue to finance much more mistakes while still paying for old mistakes. It does this when all along pretending nothing is going on. But how long will it be until the cash runs out?

Additional reading

CNBC

cnbc.com/id/39074467

Bloomberg

bloomberg.com/news/2010-09-08/subprime-2–is-coming-soon-to-suburb-near-you-commentary-by-edward-pinto.html

Christian Science Monitor

csmonitor.com/Business/The-Daily-Reckoning/2010/0909/Extend-and-pretend