“Federal officials studying how to protect housing market”, Washington Post, 1/18/11
“Currently, banks can pool mortgage loans together into an investment and sell that to investors around the globe, passing on all the risk associated with the loans. But a report released by the Treasury Department, as required by the Dodd-Frank law overhauling financial regulation, endorsed the law’s prescription that banks be forced to hold on to a portion of the investment, making it difficult for a bank to ignore the risks associated with lending.”
Once again the federal government is fighting yesterday’s war. The housing and mortgage-backed securities markets have already collapsed and banks will only lend to people with stellar credit. The proposed regulation will not protect against any current risk, but it may come in handy during the next real estate bubble.
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