These changes will come with a cost. They would have removed 30-40% of the last half of 2006's origination traffic if they had been in place then. That sounds nasty but the truth is that until the asset price inflation is corrected, there is no fix for this problem, and the only way to solve asset price inflation is to increase supply and decrease demand!
If you're in the real estate business, whether as a Realtor, Mortgage Banker/Broker or otherwise, you've contributed to this stupidity - you are going to have to take some of the pain. And pain it will be - perhaps extreme pain for those of you in overheated markets.
But without these structural changes and the pain that comes from them, we face the stark reality that even PRIME loans written in the last few years are not safe.
Update: Consumer sentiment numbers are now out, and they are down below expectations. What's potentially really bad is that the worst deterioration is among people with high incomes - the folks who spend money and keep the economy going. People are figuring it out guys.... the chickens are home and they're starting to squawk!
Disclosure: I'm either short or hold PUTs on several stocks in this sector at present. My money is where my mouth is.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.
Leads on stories of current economic and political interest are always welcome. Our fax tip line is 850-897-9364; please include contact information with your transmission.