I was interested in this article by the Economist over the weekend. In the latest ‘WTF?’ moment I’ve had when reading the financial/economic news, various US Government agencies have evidently removed the more stringent requirements on what qualifies as a government-guaranteed mortgage. Remember the heady days of 2007 and before, when ‘stated income’ (a.k.a. ‘liar loans’) and < 5% deposit mortgages were the order of the day? Welcome back, I guess. In another ‘WTF’ moment, evidently banks no longer need to have ‘skin in the game’ for RMBS they’ve structured from Fannie/Freddie mortgages; they can go back to underwriting mortgages to whomever they please, confident Fannie/Freddie will guarantee the loans for structuring. Again, back to the fun times!
The only somewhat relieving factor this time around is the US Government’s explicit ownership of Fannie and Freddie. I mean, the Government/taxpayer were on the hook for the costs of mortgage blow-up in 2008; at least this time the taxpayer gets a 100% profit sweep. It just makes explicit what has been common knowledge for a VERY long time: US taxpayers like people owning homes so much, they’re willing to subsidise each other’s purchases through the tax system.