Home Loans: More Regulation

Friday, October 21, 2005
The Office of the Comptroller of the Currency is about to make it harder for people to qualify for interest-only loans and other exotic mortgages. They still will not admit that this will cause a fall in housing prices but say that there might be a "slowdown or even stop some price appreciation".

Aren't these people a little late to the party? I for one would love to see a precipitous fall in housing prices as I'm not in the market and would love to be. I also would love to see them tighten lending requirements as I don't know if the people who are taking out these loans actually know the inherent risk involved with them. But why now? They keep claiming that this won't hurt the national housing market because these types of loans are most prevalent in the high price housing markets out west.

Are these people just dumb or plain ignorant? I am not saying I know that housing prices will tank. I'm saying that can't be so dumb to think it can't happen if they do what they say they are going to do. Markets that have seen this tremendous growth are fueled by expectations. People now expect housing to continue to appreciate at a 10-20% rate year over year. In California, people's expectations are even higher. Markets like these follow a mob mentality. People see how rich their neighbors are getting and joy in on the fun causing even greater demand. When the slightest sign of problems arise, they will be the first to get scared and run for the exit. This causes the exact opposite problem as people see demand softening and try to cash in on profits before its too late.

So now they want to change the rules mid-game. They don't like what the market is doing and want to "fix it". Where were these people earlier when thousands of Americans jumped into these types of loans in the first place? I swear this feeds right into my conspiracy theory of how the rich get rich and stay that way. I'll have to post about it some other time though.