How do you propose to avoid issuing loans to unqualified buyers? Simple. Greatly reduce the involvement of Fannie and Freddie in the mortgage loan system.Right now, those two are the ultimate lender for something in excess of 80% of the loans made these days. That means that most "lenders" aren't really lending their own money, they're lending Fannie and Freddie's money.And THAT means that the lenders don't really care how the loan performs. They just care that the loan meets the requirements for Fannie and Freddie to take the loan off their hands. Lenders don't really have any skin in the game. Yes, if they screw up, Fannie and Freddie can make them take the loan back, but that's why the loan process is so painful with all of the obscure bits of information. Fannie and Freddie require those things, and lenders get them - not to make sure the borrower can repay the loan but to make sure they have the paperwork in order so that the loan can't get put back to them.Get these two quasi-government entities back in their corner, taking on something closer to 5% or 10% of loans, and get lenders back to lending their own money. Then you'll get some logic back into the market, along with a bit more variety of loans available to fit situations that aren't the cookie cutter loans that Fannie and Freddie buy.--Peter
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