Posted by Leonard Steinberg on September 3rd, 2013

Are we heading for another Housing mess? Did we learn nothing from the previous mess? It appears that either the mortgage industry is ignoring the law or the government is not enforcing the law: The Dodd-Frank Act was supposed to require securitizers to retain 5% of the credit risk of the mortgage-backed securities that they issued, in order to reduce the risk of a repeat of the last housing bubble. Today, federal financial regulators simply ignored that requirement. They created an exemption that would have covered at least 98% of all mortgages issued in 2012. Why? Because “adding additional layers of regulation would have contracted credit for first time home buyers and borrowers without large down payments, and prevented private capital from entering the market.” That’s according to the head of the Mortgage Bankers Association.

This is the exact same argument that was made in favor of deregulation during the two decades prior to the last financial crisis! It’s further proof that everyone has either forgotten that the financial crisis happened or is pretending that it didn’t happen because, well, maybe it won’t happen again?

What is terribly worrying is that the intellectual, regulatory, and political climate seems to be basically the same as it was in 2004: no one wants to do anything that might be seen as hurting the economy, and no one wants to offend the housing industry. Surely we will all be highly offended if this reckless behavior results in another crash?