There’s always something to howl about.

How To Salvage The Mortgage Industry in Six Months

I’m going to say something very unpopular… again:

We gotta get the Government out of the mortgage business.

That’s not going to happen anytime soon but we, as responsible free market advocates of our respective industries, must never stop saying “I told you so” when the whole thing implodes again.  After repeated admonitions, they’ll start listening.  When they start listening, we’ll experience a brutal but swift decline followed by a healthy and sustainable restoration of private mortgage banking.

Everyone is worried about Wall Street securitizing the paper.  The prevailing thought is that without a government guarantee, no clear-thinking investment banker will ever take a risk on the American homeowner again.  I know how to solve that problem;

Make ’em an offer they can’t refuse.

If a housing capital drought reduces housing prices to a stoopid low level, those investment bankers will be back.  Investment bankers have the memory of a four-year old.  We have to remove the current arbitrage game they’re playing so that they can get back into the business of doing what they should be doing; analyzing and pricing risk.

Right now, your mouth is probably shaped like an “O”.  You’re most likely  thinking “mortgage rates will skyrocket to 10% and NOBODY will buy a house! ”  Your conclusion would be wrong and I’ll prove it to you:

Today, a $300,000 30-year, fixed-rate loan, at 5% requires a monthly principal and interest payment of $1610.  If mortgage rates skyrocketed to 10%, the loan amount, for the same payment, would drop to $183,500.

That’s an offer Wall Street can’t refuse.

PS:  If I’m sounding like a broken record, it’s because I’m going to keep saying” I told you”, as my battle cry, until they start listening.  For those of you who believe in “spreading the wealth around”, believe me when I tell you that price deflation redistributes wealth to its proper stewards.