The New York Times ran an interesting article today on the Consumer Financial Protection Bureau’s draftsof new consumer mortgage rules. Well, the article interested ‘Puter, anyway. Mostly because the article proved ‘Puter’s longstanding position correct.

You see, CFPB’s new regulations will effectively require a borrower to have 20% equity in the mortgaged property at the time a consumer mortgage lender originates a mortgage .

Naturally, the usual suspects scream that the world is ending, and the poor are (again, naturally) the hardest hit. ZOMG!!1! OH NOES!!1! MAH CRAK ADDLED 18 YEAR OLD NIECE WITH TEH 4 KIDS BY 3 BABEE DADEEZ CNT UFFORD A HAWSE!1!one!! WALLSTREET ONEPERCENTERS BUSHITLERETHUGLICANBURTON!1!eleventy!!!

Here.  Take a gander for yourself.

After the housing collapse, initial reform proposals emphasized the need for buyers to put down a large chunk of money. The reasons seemed sensible and obvious. Many of the mortgages that went bad involved tiny down payments — if any at all — and studies have shown that borrowers with a larger amount of equity in their homes are less likely to default. 

“If our goal is to prevent foreclosures,” said Paul S. Willen, a senior economist and policy adviser at the Federal Reserve Bank of Boston, “I can’t think of anything more effective than requiring a down payment.” 

But in a surprising reassessment of the causes of the housing mess, many lawmakers, lenders and consumer advocates are now cautioning against rules that would require many borrowers to come up with significant down payments. Their main concern is that such efforts could end up cutting the supply of mortgages to lower-income borrowers, who simply do not have the money put down. They also contend that the subprime debacle has distorted the issue.

There you have it.  In order to protect the taxpayer backed banking system, it makes sense to require mortgage lenders to demand an 80% loan to value ratio (“LTV”). But if we require an 80% LTV, the less well-to-do among us will never get a house.

Read on.

The proposal prompted widespread objections from consumer advocates, bankers and home builders, who said the plan could shut many borrowers out of the housing market. Banks, they argued, are likely to focus heavily on making qualified residential mortgages. And if those mortgages require high down payments, lenders will be hesitant to make loans with little money down. 

Consumer advocates make a nuanced case. They do not deny that down payments reduce the risk of default. But they say defaults can be reduced almost as much by applying other rules that curb lending to certain types of borrowers.

Not so fast, hippie, Gaia-hugging, Marxist, redistributionist not for profits. You’re stealing a few bases here.

First, as noted in the article,

…the financial sector overhaul was not just meant to protect borrowers. It was also intended to make banks and financial markets more resilient to shocks like housing busts. In other words, the legislation always envisioned a trade-off between home ownership and the stability of the financial system

Good point, no? Sometimes giving people stuff for free doesn’t work out so well, does it? The 2008 bubble was the market’s way of saying “this is why we can’t have nice things.” Or, maybe it doesn’t make sense to lend to people with no skin in the game.

More to ‘Puter’s point, the stability of the banking system and economy is more important by a factor of 10 to the well-being of the poor because if the banking system and economy aren’t stable, there’s no credit for those businesses that create jobs and products the poor need more than the rich. Keeping people without the means to purchase, much less maintain, a house is a small price to pay in return for restoring confidence in banks and the free flow of credit.

And, before you get all hate-y on ‘Puter, the rich, white, balding, squat, middle-aged, financial sector One Percenter, consider the following.  It is almost guaranteed that in most areas of the country, the property bubble was caused primarily by the easy access to credit without skin in the game. Sellers could demand higher prices because banks enabled buyers to pay them. 

But the rules are changing.  Consumer mortgage credit’s not so easy anymore.  Here’s the silver lining for left wing, economically illiterate advocates for the “poor” among us. Over time, the restricted flow of credit (actually a return to traditional lending standards) will cause housing prices to fall. If banks won’t lend as much, the vast majority of home buyers won’t be able to pay as much.  And housing costs for all will fall.  Soon enough, the so-called poor may be able to afford housing in their neighborhoods again.

That is, if they can manage to exercise some self-discipline and save some danged money. But that’s a story for another day.

'Puter

Always right, unless he isn’t, the infallible Ghettoputer F. X. Gormogons claims to be an in-law of the Volgi, although no one really believes this.

’Puter carefully follows economic and financial trends, legal affairs, and serves as the Gormogons’ financial and legal advisor. He successfully defended us against a lawsuit from a liquor distributor worth hundreds of thousands of dollars in unpaid deliveries of bootleg shandies.

The Geep has an IQ so high it is untestable and attempts to measure it have resulted in dangerously unstable results as well as injuries to researchers. Coincidentally, he publishes intelligence tests as a side gig.

His sarcasm is so highly developed it borders on the psychic, and he is often able to insult a person even before meeting them. ’Puter enjoys hunting small game with 000 slugs and punt guns, correcting homilies in real time at Mass, and undermining unions. ’Puter likes to wear a hockey mask and carry an axe into public campgrounds, where he bursts into people’s tents and screams. As you might expect, he has been shot several times but remains completely undeterred.

He assures us that his obsessive fawning over news stories involving women teachers sleeping with young students is not Freudian in any way, although he admits something similar once happened to him. Uniquely, ’Puter is unable to speak, read, or write Russian, but he is able to sing it fluently.

Geep joined the order in the mid-1980s. He arrived at the Castle door with dozens of steamer trunks and an inarticulate hissing creature of astonishingly low intelligence he calls “Sleestak.” Ghettoputer appears to make his wishes known to Sleestak, although no one is sure whether this is the result of complex sign language, expert body posture reading, or simply beating Sleestak with a rubber mallet.

‘Puter suggests the Czar suck it.