History Of Us Mortgages
As we know now, by how often this graph has been used, this tells an important narrative of what has happened to our credit and lending practices; eventually leading to its collapse.
The extension of credit caused the inflated price of houses. Subsequently that same extension was made out of unsustainable practices furthered by a few fouled financial mechanisms
In the perspective of the general good of the people, the shortage and accessibility of credit is what causes us the most harm. It has stalled the operations of existing businesses, severely hindered the entrepreneur?s ability to start a business, and is keeping people from buying homes and taking part in those sectors.
Inturn, supplying credit to those in need is our programs first priority. Credit to consumers is sponsored by investors, which are in huge numbers dwindling( due to falling prices, insecurity of future of banks, global recession, ect.). Our program sees this as the starting point.
Instilling confidence in the financial sector no easy task. To stimulate the activity in the investor market we will dissect the faults that caused its erosion.
The goal is to improve the transparency of Risk translated through from lenders to investors in a variety of ways.
* new agencys: will be implemented to: A.) devise a REVAMPED Risk Assessment model used in the buying selling and packaging of loans. We are no finance theorists but surely the previous model failed by shear definition. It must take into account the fact that housing prices do not always go up. A lesson I think investors have learned the hard way.
* Create accountability among lenders. The systemic problem of brokers having no incentive to make socially responsible loans. In fact, it is the opposite; many were rewarded for being irresponsible.
Another way to instill confidence is to change the way sub-prime loans are facilitated in the secondary mortgage market.
The riskiest of loans should not be `falsly insured’ We see the growth in CDOs being a major cause of this mess. (collaterized sup-prime securities) The fact that by pooling them and buying `bond insurance’ gave them ratings in which they did not deserve(by the way when insurance companies couldn’t cover their loses what do you do then? Everyone loses), this inevitably leading to the deteration in returns and confidence in that sector. Our program would mandate that these risky loans are not insured, as surely this will lower the amount risky loans given, it gives banks incentive to make loans in which the interest rate accurately reflects the amount of risk associated in the process from the lending stages all the way through to investors.
Our program also regulates the interest rate ceiling on Adjustable Rate mortgage loans by caping the amount of interest possibly bestowed upon any particular borrower. Doing so makes it easier for lenders to assess whether their Income(not stagnate equity) can support such payment when/if interest rates rise. As risk is more accurately assessed now by the lenders, investors will be more likely to invest in these less elastic risk scenarios. Borrows also enjoy the benifets of perhaps cheaper money in the beginning of their loan term while still having certainty and knowledge of what he/she confronts in the future.
AHL- How Washington Failed to Rein In Fannie, Freddie, Binyamin Appelbaum, Carol D. Leonnig and David S. Hilzenrath, September 14th, 2008, Washington Post,
Cowen-, Hearing on Protecting Homeowners: Preventing Abusive Lending While Preserving Access to Credit, Statement of Cameron L. Cowan November 2003,
Freddie Mac- Company Statements
Fannie Mae- Fannie Mae Company statements,
Marples- The History of Home Mortgages – A `Dead Pledge’, Gareth Marples, 9/11/2008.
Chain of Fools- Chain of Fools, Mark Miller, Oct. 3,2008.