A "safe" mortgage - 20% down

Regulators define "safe" home loan


U.S. lenders would have to offer mortgages with at least a 20 percent down payment if they want to repackage the loan to sell to other investors without keeping some of the risk on their books, according to a proposal U.S. bank regulators endorsed on Tuesday.

The Federal Deposit Insurance Corp board agreed to seek public comment on the proposal that is intended to restore lending discipline and define the safest form of mortgages that can be sold to investors.

Last year's Dodd-Frank financial law requires firms that package loans into securities -- a practice known as securitization -- to keep at least 5 percent of the credit risk on their books.

The provision is meant to force securitizers to have "skin in the game," so they don't churn out poorly underwritten loans and then pass along the risk to investors, as happened during the 2007-2009 financial crisis.

Comment: A sound idea


  1. Wow, the FDIC is finally cluing in to the common knowledge that existed until 20-30 years ago? One would have thought that their PhDs would have inoculated them to common sense. :^)

    And it also says something that it's the FDIC, and not investors, insisting the banks have some skin in the game. Something that suggests these investors have also been inoculated against common sense: "Gosh, he's selling me a security that he's not willing to possess himself. What can possibly go wrong?"

    (shaking head....)

  2. And then you get my new home state of IL providing programs like this: http://www.ihda.org.

    And apparently, since we haven't owned a home in the last 3 years, we qualify. We're considering it - they just raised my income tax, I figure this is a way to get some of it back. :)


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