Friday, November 16, 2007

More Government Stupidity

"Lenders must for example determine what loan products are 'appropriate' to the consumer's existing circumstances. Does that mean that the lender has to investigate whether the borrower is telling the truth? ... Lenders must make 'a reasonable and good faith determination based on verified and documented information' that the consumer had a reasonable ability to repay the loan. Who will be able to say what is reasonable or taken in good faith? Would you like to make a loan if years later you can be called in front of a federal agency or a jury and cross-examined as to whether your actions were reasonable? ... Thousands of loans are packaged and sold as part of Mortgage Backed Security pools. How long will housing mortgages continue to be part of these pools after Congress creates a due diligence standard that no securitizer will want or be able to meet? ... Although the Mortgage Review and Anti-Predatory Lending Act may have been written with intentions that are good, its consequences are not", Stuart Saft, a Dewey & LeBoeuff partner, in the WSJ, 10 November.

These really are the last days, the "wolf will lie down with the lamb", Isaiah 11:6. I am in substantial agreement with a member of the Corporate defense bar. The proposed legislation will create potential chaos. How can a lender become a borrower's fiduciary? That said, I think many lending abuses would end if mortgage originators had to retain 10% of their loans until paid in full. As to the potential inability to securitize these loans, I say "wonderful". The loan originators will no longer be able to pawn off junk. A special kudo to Saft for focusing on the "consequences" of the proposed legislation, not just producing empty rhetoric.

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