At the bottom of this article about California’s attempt to protect consumers through the tightening of mortgage regulations is this alarming paragraph:
As Machado shepherds his bill through the legislature, California Gov. Arnold Schwarzenegger’s office is evaluating a plan by Department of Corporations Commissioner Preston DuFauchard proposing the state bar loans to subprime borrowers unless lenders could verify their employment and income.
Wow. The ramifications of this are too far and too great to capture it all in one post. But to give you an idea of the magnitude of a law like this, consider this: nearly 50% of all subprime originations in the country were subprime with stated income. Who would it affect?
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People with expensive homes and not the best credit (it would push home affordability in CA down to nil)
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Self-employed borrowers will basically be locked out of buying a home (most business owners take too many deductions to qualify based on 1040 tax return income)
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Borrowers who depend on overtime hours or hourly pay
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Borrowers who depend on rental income
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Many, many, more
There also has to be some consideration and discussion here about profiling and discrimination, racial and otherwise. My stance is that the government doesn’t need to be telling people who to lend money to, and who to accept money from. The private market can handle it based on competition and guidelines. Government should protect consumers through enforcement and improvement of existing loans; not make decisions for people.
I’ll have more on this as it develops.
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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