Tuesday, July 08, 2008

Fed to Make Homebuying More Difficult

The Federal Reserve will issue new rules designed to cut down on teh "shady" loan practices often present in the subprime mortgage market.

Look, I will admit there are some not so upright mortgage lenders out there and they deserve to be driven out of the market. But let's no kid ourselves, with home prices as high as they are, even after the drop in prices, most people will not be able to afford a home without the presence of the subprime market. So, if the Fed tightens the rules, what will happen to the subprime market, it will get more difficult (read costly) to operate in and thus, fewer loans will be made. With fewer subprime loans, you get fewer first time homeowners.

So what sounds like good news is actually bad news.

The Fed would do well just to enforce the rules on teh books and let mortgage lenders and to a certain extent gullible buyers take the hit.

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