In my last post I considered the new mortgage fee schedule that is due to go into effect next week, and made two points. First, despite some outlandish claims online, it is not the case that borrowers with better credit scores will pay higher fees than those with worse scores. The advantage to having a stronger credit rating has been diminished for some values of the loan-to-value ratio, but it has not been erased or reversed. And second, conditional on credit score, the new schedule has significantly lower fees at the highest loan-to-value ratios. This suggested to me that some people might try to game the system by borrowing more than they need to, and then making a large principal payment after the loan has closed. I wondered whether the FHFA administration had taken this incentive effect into account when designing the schedule.
Overall the new fee structure supports higher leverage, which is similar to the Bush ownership society programs which ultimately lead to the housing crash and banking bail out in 2008.
The motivation was the same then as well (more home ownership amongst minorities who were on average worse credit risks).
How do you think this credit bubble will manifest? If the government were to focus on actuarial soundness and credit risk, vs redistribution and racial equity, what might that look mine? Assume they still want to subsidize home ownership via mortgage subsidies.
I know earlier you argued that racial equity was not a motivation, but it has been an explicit goal of this administration (and more broadly) and in other areas where whites are disproportionately negatively impacted there has not been similar redistributive measures. Certainly the Bush plan was an effort to woo Hispanics.
Overall the new fee structure supports higher leverage, which is similar to the Bush ownership society programs which ultimately lead to the housing crash and banking bail out in 2008.
The motivation was the same then as well (more home ownership amongst minorities who were on average worse credit risks).
How do you think this credit bubble will manifest? If the government were to focus on actuarial soundness and credit risk, vs redistribution and racial equity, what might that look mine? Assume they still want to subsidize home ownership via mortgage subsidies.
I know earlier you argued that racial equity was not a motivation, but it has been an explicit goal of this administration (and more broadly) and in other areas where whites are disproportionately negatively impacted there has not been similar redistributive measures. Certainly the Bush plan was an effort to woo Hispanics.
Anyone trust this crowd? Me, neither.