Subprime 2.0 Is Coming Soon to a Suburb Near You: Edward Pinto

The 'credit machine' that supplied easy money based on the plateau of prosperity broke down in 2008. The market through the balancing of risk and reward demands larger down payments, higher credit scores, and proof of income. The free market’s propensity to balance risk with reward resulted in even further contraction of loan demand. This is politically unacceptable.

The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.

‘Prudent Underwriting’

This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.

The exchange value of the U.S. Dollar (USA, Inc) is function of debt and fiscal managment. Any government proposal that attempts to overrides the market's attempt to balance risk and reward will only create further distortions, bad investments, and currency devalution.

In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.

Thanks Bob