Last year the Dodd-Frank financial rewrite mandated that lenders keep some portion of their loans on their books as an incentive to make better loans.
Yesterday Federal Deposit Insurance Corp. chief Sheila Bair, who was left to work out the details, has now stated that mortgage borrowers who put 20% cash down and meet other financial standards will be exempt from the new risk limits. Banks that package riskier loans and sell those securities to others would have to keep 5% of the loans on their books. Ms. Bair says that by having “skin in the game,” securitizers’ risks will be aligned with their bondholders; but none of this apples to Fannie and Freddie
The intended result by subjecting private lenders to more stingent risk-rententon rules is it will be harder to compete with the their government counterparts i.e. Fannie and Freddie. At a time when the housing market is at an all time low and home financing does not exist, not for a lack of qualified buyers I might add, the government continues to beat a dead horse with failed government policy that continues to play favorites.