March 3, 2007

Regulators Might Release New Subprime Lending Guidelines

Another nail in the coffin for subprime loans. This possible change follows the Freddie Mac refusal to buy many subprime loans, effectively killing that market. Banking regulators, concerned that slack underwriting standards left many homeowners with mortgages they cannot pay off last year, might release new subprime mortgage guidelines Of course, these changes will prevent some weak borrowers from buying homes that could have a year ago. One commenter, Cbass, referred to this Wall Street Journal article on subprime loans that quotes one guy as saying, “at the low end, it ought to whack 5 percent out of effective home demand right now.” 5% isn’t too bad. It will slow…

February 28, 2007

Freddie Mac will no longer buy “Liar’s Loans”

3 years too late. The company also will limit the use of low-documentation products in combination with these loans. For example, the company will no longer purchase “No Income, No Asset” documentation loans and will limit “Stated Income, Stated Assets” products to borrowers whose incomes derive from hard-to-verify sources, such as the self-employed and those in the “cash economy.” There will be a reasonableness standard for stated incomes. Notice that Freddie Mac buried the lede (above) in the middle of a middle paragraph of their press release. Their previous policy was too stupid for words so they buried the change. Why would a salaried person ever get a “stated income”…