The Dodd-Frank bill requires lenders to retain a five percent risk-retention in loans sold to the secondary market.  It is an idea driven by the lessons that we learned from the financial crisis. Give banks a moral hazard by making them hold some skin in the game. It is hoped that they would then respond by not making unsustainable loans.

The bill gives regulators some time to decide how to implement that requirement. The Dodd-Frank bill does offer some guidance. The Merkley Amendment sets an expectation that lenders will hold a five percent stake in any ”qualified residential mortgage.”   A “QRM,” as it known, needs risk retention.  An exempted loan does not.

First Thoughts

This is a classic example of a rule that could have unexpected consequences. At first glance, it seems like common (more…)

The recession, coupled with its supporting burst of the housing bubble, is prompting a re-evaluation of the role for rental housing. Knowing that it is time to rethink assumptions about home-ownership and rental housing is easy. It gets harder when people ask what should be done. That is because there is no clear agreement on rental demand.

Let’s start with a fact: rents increased this quarter, for the first time since 2008. That should tell us that things are getting better.  However, it gets more complicated when people try to read into the messages underneath the numbers.

Why Rental Housing Is About to Boom

Some would conclude that the foreclosure crisis will put more families into the market for rentals. Call it the Transformation Hypothesis. Homeowners are being transformed into renters. Fannie Mae is foreclosing on tens of thousands of mortgages every day. Certainly, says the reasoning of some, this would mean more renters.That view is (more…)

How does the non-profit community account for the new state of home ownership, where “underwater” homeowners are increasingly prepared to walk away from the mortgage debt on their homes.

Here’s the problem: from policy leaders to on-the-ground community organizations, non-profits were telling their clients to buy a home for the last ten or fifteen years.  Now, many of those households are in homes that are underwater. Poor America, and in particular female black America, own less now than they have at any time in the last decade.

No one, from investors in mortgage-backed securities down to municipalities and neighbors, are happy when someone walks away. It creates all kinds of problems.

Do not confuse walking away with seeking a loan modification. The latter group are struggling to remain rooted to the American dream. The “walkers,” though, are rejecting the very concept that drove so many non-profit groups to support any effort at stimulating home ownership.

Home-ownership is still very popular, of course. Walking away is an option taken up by only a small minority. Fannie and Freddie articulate their mission as “the American Dream” business. Still, “walking away” is less rare than it used to be, and in (more…)