On Wednesday of this week, the Feds, the SEC and HUD approved new and more flexible standards for mortgage backed securities on loans not backed by Fannie Mae and Freddie Mac. These rules take effect in the fall of 2015 and eliminate a 5% risk retention requirement that was imposed on the lending industry and mandatory 20% down payments as part of the legislation passed in reaction to the financial crisis. The changes were approved over the objection of two SEC commissioners (on a 3 to 2 vote) who cited a lack of economic analysis and concerns over making the same mistake that gave rise to the Financial Crisis. Concurrent with this news, Mel Watt, the head of the FHFA, which has oversight over Fannie Mae and Freddie Mac, announced that they would begin to allow backing loans with down payments as low as 3%.
So – is this is good news for those who are trying to purchase a home and qualify for a mortgage? Given that the Millennials are burdened with high student loan payments and debt burdens, such action may well be needed in order to sustain growth in the housing industry when young couples have to overcome stagnant earnings growth and student loan payments that often run $700 to $800 per month. It’s a tough situation. I remember when I left law school, my student loan payment was $89 per month and my first house payment was $850. What is painful is that earnings for a young lawyer in the 80’s are similar to the pay scale today – but the debt burden from student loans and housing costs are far higher. Here’s the question: Do we solve the student debt and lackluster earnings growth problems for our young Americans by allowing them to buy homes that they cannot afford given their income and debt problems?
This may be a shocker, but I think we’ve learned putting a Band-Aid on a deep gash – without antibiotics – leads to infection.
Meanwhile, we will continue to work on solving the infections created by those we rely upon to guide our future.
Enjoy the weekend and be sure to listen in on Saturdays from 8:30 to 10 AM on WDFN 1130 AM – on iHeart at CLICK HERE!– and watch the show on TV 20 on Sundays at 11 AM. Law and Reality is not just information – it’s entertainment!