Monday, October 18, 2010

The Mortgage Crisis - What 'the Market' is Saying

According to Bloomberg, the "market" is saying that there is not a significant "foreclosure-document crisis".
The mortgage-bond market shows investors shrugging off speculation that the U.S. is in the throes of a foreclosure-document crisis.

Typical prices for bonds tied to home loans on which borrowers often failed to document their incomes or didn’t plan to live in their properties ended last week up 1 cent from a month earlier at 64 cents on the dollar, according to Barclays Capital. The most-senior securities backed by so-called Alt-A mortgages with a few years of fixed rates, which were unchanged last week, have climbed 31 cents from a record low last March.
Can we be honest for a minute? The market isn't "shrugging off" the problem for the reasons suggested by industry insiders, such as that "in almost all cases... homeowners have missed payments and the records aren’t that seriously flawed". The markets are shrugging off the problem because they expect a quick legislative fix - if not the one that already fell to a pocket veto, then a new legislative solution.

I don't personally object to fixing things legislatively even though, as evidenced by the opposition to a consumer financial protection agency, the mortgage industry would howl if the shoe were on the other foot. But let's not confuse the industry's entitlement mentality with a belief that this problem is otherwise minor. It's only "minor" to them because they own Congress.

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