Mighty Bargain Hunter

Awww, Ben, do we HAVE to?

May 23rd, 2006 | by mbhunter |

Ben Bernanke, that spoilsport — taking all the fun away from the banks:

Fed chief tells banks to be vigilant on home loans

The Federal Reserve Chairman is laying out new guidelines for selling non-traditional (”creative”) mortgages in an effort to ensure that these types of loans are underwritten correctly.

In other words, the Federal Reserve wants stronger criteria than the current ones (defined as “having a pulse”) for extending mortgage credit.  How terribly constraining!

Maybe the real concern is that these loans are extended with the sole intention of selling them off as quickly as possible.  This way the (very high) risk of default is shipped off to someone else, hot-potato style.  In this light, the lending institution originating the loan doesn’t really need to be concerned about risk mitigation.  Write the loans, collect the fees, sell them off!

Until no one wants to buy anymore.  Then the loser — the buyer of last resort — is stuck holding the bag.  Buyers like government-sponsored entity Fannie Mae.