The entire concept of subprime mortgage lending is about to be Franked (as in U.S. Rep. Barney Frank, chairman of the House Financial Services Committee.
Frank told a university audience Monday that his committee would “bring a bill out in April that will stop people from getting loans in the future that they cannot repay.”
But Frank is smart enough to know that that is not likely to happen the way he wishes it would. And so, says a Reuters report, the bill would limit, though not eliminate, the securitization of subprime mortgages.
Whether this will work (that is, if the bill ever becomes law) is a more interesting topic of discussion.
Deploy Countermeasures, But Carefully!
If banks can no longer bundle up their more risky mortgages and sell them to investors, they may slow down the mortgage lending process even more so than has already been the case. Sure the whole idea is to stop banks from making greedy loans to people they know could never afford the product they are buying, but if the reaction isn’t a measured one, we could see the housing situation get worse rather than better.
A certain amount of risk taking is needed or the entire machine simply stops in its tracks.
Frank apparently understands this–“We start with restricting securitization,” he is quoted as saying, but quickly adding, “not to the point where it stops.”