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 down the recovery in median home prices, of course. It probably won’t have as much effect on prices of higher priced homes.
In the medium to long term these new policies will greatly increase the stability of the housing market, the price increases won’t go as high and the price declines won’t go as low. The policy is just 3 years too late.
RELATED: Rising Delinquenies at Countrywide
Countrywide Financial Corp., the biggest U.S. mortgage lender, reported that payments are late on nearly 20% of its subprime mortgage loans.