…but you can’t make him drown:
Governor David A. Paterson today signed into law a critical subprime lending reform bill which directly addresses the mortgage crisis in New York State. … The new law will immediately help protect people from losing their homes and mandates reforms to help avoid a similar crisis in the future. The bill also takes into consideration the importance of striking the right balance between consumer protection and the availability of affordable credit.
Of course, one man’s “right balance” is another man’s “you must be bonkers” —
Mortgage finance giant Freddie Mac took the first step in what some industry experts expect could be a wider trend in key local markets, and said Tuesday morning that it will not purchase mortgages in the state of New York that fall under the state’s new definition of “subprime.”
…
Apparently, nobody asked Freddie (and likely Fannie) for their opinion on the new law before it was passed; and at the end of the day, Freddie’s move to halt purchases underscores what may become a larger issue as consumer advocates press for more restrictive legislation surrounding lending practices.“Lenders will just decide to stop lending in certain areas,” said one source, a banking executive that asked not to be named. “We could end up with an entire class of borrowers that I call ‘the unlendables.’”
It’s quite simple really: A mortgage is meaningless, absolutely meaningless, without an enforceable right to foreclose in the event of default. To ask a lender to make a mortgage loan with little or no foreclosure protection is like asking a supermarket to let people take whatever groceries they want and pay whenever they feel like it — or not ever.
Of course, it was never the function of Fannie and Freddie to buy subprime mortgages in the first place. Indeed, it was the prospect of being able to sell off your loans to the GSEs that was supposed to nudge banks into making only high-quality loans at all. So much for that idea.
And no doubt the activist legislators in Albany and other state capitals (not to mention Washington) will eventually respond by dredging up the dreaded r-word to strong-arm banks into making risky loans to unqualified borrowers — and the whole cycle will begin again.
The first “mortgage crisis” isn’t even over yet and politicians are already laying the groundwork for the next one.
Plus ça change…
(Via Dealbreaker.)
Previously:
–The Creature from the Blaisdell Lagoon
–What About Predatory Borrowers?
