December 6, 2010

Seriously WTF - mortgage rates

Swiped in toto from Coyote Blog:
Hair of the Dog
This is pretty incredible. It�s like the last two years didn�t even happen.
A national consumer coalition plans to file a series of landmark federal fair housing complaints beginning Dec. 6, challenging a widespread practice by banks and mortgage lenders: requiring borrowers who apply for FHA loans to have FICO credit scores well above the 580 minimum set by the FHA for qualified applicants with 3.5 percent down payments�.

Because FHA insures lenders against losses from serious delinquency or foreclosure, there is �no legitimate business justification� for rejecting applicants solely on the basis of FICO scores that are acceptable to FHA, the complaints contend.
Subprime mortgage customers are generally defined as those under a credit score of 620. I am surprised that anyone in this environment is offering 3.5% down to any buyer (though here is the government actually advertising the fact). But giving 3.5% down to subprime borrowers?

Even with the FHA guarantee, banks have learned that the cost of default for them is not zero. Only someone who has been in a cave for two years could somehow ascribe this action to discrimination rather than an obvious reaction to the ongoing mortgage crisis. The government is still out acting irresponsibly, and when private institutions (who actually have to live with the cost of their decisions) try to behave like adults, they get hauled into court.

By the way, this sure does seem to bolster the argument that community banking standards and the pressure from the government and community groups to drop lending standards played a large role in the housing crisis. If we are seeing this kind of pressure even after the housing disaster, what kind of pressure was at work, say, in 2005?

Via Mark Calabria, who has more
What cloud cuckoo land do these people live in? Posted by DaveH at December 6, 2010 12:50 PM