New Mortgage Lending Scheme

The Federal Reserve’sexpansionary monetary policy supplied the means for unsustainablehousing prices and unsustainable mortgage financing. (White 2008) I have discussed the growth in regulatory mandatesand subsidies that exaggerated the demand for riskier mortgages,most importantly the implicit guarantees to Fannie Mae and FreddieCato Journal, Vol. 29, No. 1 (Winter 2009). Copyright © Cato Institute. All rightsreserved.Lawrence H. White is the F. A. Hayek Professor of Economic History at theUniversity of Missouri-St. Louis ]  Mac that combined with HUD’s imposition of “affordable hous-ing”mandates on Fannie and Freddie to accelerate the creation of amarket for securitized subprime mortgages.1 Second, the Federal Reserve has undertaken self-initiated new lending roles that constitute a shadow bailout program more than twice the size of theTreasury’s $700 billion bailout program.

There is  little evidence that the Fed’s new lending has helped to resolve our financial problems, rather than to delay their resolution.  Conventional mortgage origination scheme is compared to the advent of the current scheme formed in 1996. Under a conventional mortgage loan the lender is held to the origination closed at settlement. In this example the originator is seeking to earn a gain on sale The conventional mortgage origination scheme is compared to the advent of the current real estate investment trust scheme formed in 1996.

Under a conventional mortgage loan origination the mortgage lender is held to the loan settled at closing or loan settlement. In this example the originator is seeking to earn a gain on sale under generally accepted accounting principles or GAAP

 

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