Good Standards Cost Nothing
In the Laurel and Hardy movies of the 1930s, Oliver Hardy often attempted to blame his cohort and fellow nincompoop Stan Laurel for all of their foul ups with this classic line: “Well Stanley, this is another fine mess you’ve gotten us into.” When left to their own devices, Laurel and Hardy were good at making messes, not so good at cleaning them up.
A bunch of mortgage financiers here in the US have apparently learned something from the masters of farce. The adjustable rate mortgages and credit default swaps they’ve been foisting on their unsuspecting customers are straight out of the Laurel and Hardy playbook.
The mortgage industry doesn’t regulate itself well. Lending institutions need help from the public to identify standards which will allow them to operate successfully in good times and avoid massive government bailouts during recessionary periods. Anything goes doesn’t cut it anymore.
Exotic repayment terms won’t transform a person who can’t afford a home into a worthy credit risk. The old fashioned 10% down, excellent credit rating and proof of income requirements for home loan applicants worked much better for the health of our communities.
Fixed rate loans give homeowners terms which they can understand and plan for. Adjustable interest rates might work with credit cards and small unsecured loans, but average homeowners can’t keep up with monthly mortgage payments that increase by a third or more in less than a year.
Now that Congress has finished debating the economic stimulus package, perhaps they can decide on how to regulate the home mortgage industry more effectively going forward. That wouldn’t cost taxpayers a dime.
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