Tuesday, October 16, 2012

Submerged and Subprime

The mortgage malaise is enduring
And frustrates our efforts at curing,
When a fourth of all dwellings
Are currently selling
For less than the loans they're securing.

The Wall Street Journal reports that the Consumer Financial Protection Bureau, as part of an effort to unify and update mortgage lending standards, has developed the concept of a "qualified mortgage" which, if adhered to by lenders, would provide them with a safe harbor against borrower lawsuits. The CFPB would like to simplify regulation and hopes that offering sought-after legal relief and regulatory certainty to lenders will induce them to lend again.

While such initiatives are commendable, I cannot escape the thought that they ignore the elephant in the room: that roughly a quarter of all US residential mortgages are underwater, and half of those underwater mortgages are delinquent. To clear this market imbalance will take a combination of foreclosures, lender write-downs and the passage of time; there are no quick fixes.

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