March 29, 2011
Title IX of the Dodd Frank Act seeks to address the defects of the prior model of securitization by imposing requirements for transparency, due diligence, representations and warranties, and retention of credit risk.
"Skin in the Game of 5%" proposed by the FDIC is no deterrent on mortgages that have not received a 20% down payment.
The wrapping up/processing/and securitization fees received, for providing "questionable mortgages with less than 20% down payment, and questionable real estate assessed values that the mortgage is based upon" into the Securitization Market, are far in excess of the maximum potential loss for holding 5% skin in the game.
The 5% skin in the game will be the maximum potential loss for playing the game!
A 20% skin in the game for the loan originator will be a far more effective deterrent when securitizing mortgages with less than a 20% down payment.
Finally, after the Savings & Loan collapse from 1988 thru 1991, National Home Builders (many publically traded) began establishing mortgage subsidiaries.
They saw the $$$ at the end of the rainbow and issued mortgages for their new homes for which they could charge more for the sale by issuing liar loans, and interest only mortgages in order to show higher profits in their "Home Building Operations". Then they sold the mortgages to be "securitized on Wall Street" for another profit in their mortgage subsidiary and unloaded all their risk.
I hope someone is auditing that massive "Conflict of Interest" some of which should be criminally prosecuted!
I hope the new laws prohibit the Home Builder, as well as Real Estate Agents, and all their related companies from "Mortgage Origination and Appraisals".
Sincerely,
John J. McCauley