Moving forward banks will be forced to take some of the risks that are associated with these securities. In the past they weren’t hold the risk, but now it is essential in order for our economy to move forward; at least that is what everyone is saying now. Banks will also be enabled to determine for themselves what risk they wish to take on and what they plan to get dish out to someone else.
Major banks asked that the government call all their loans qualified residential loans, but will that really happen? Bank regulators certainly wanted to jump in and say that they only wanted to take responsibility for the most conservative mortgages. Shouldn’t the banks take responsibility for everything they do?
The Dodd-Frank Act was final with only requiring them to hold onto 5% of the risk for only qualified residential mortgages. Bankers know that when business isn’t properly defined, that many borrowers wouldn’t qualify to get loans, which will do anything but stimulate the economy. Banks did get regulators to agree to limiting the risk they would have to take.
Mortgages were being sold in order to act as collateral for existing debts, which caused the banks to go down faster. At the time, everyone thought this was a great idea, because these mortgages were deemed as the least likely to default. I am not sure how that was possible, but I think we know better now. I would say that not only should these mortgages be monitored more closely, but I would also agree that yes, banks should take more responsibility as well.
-Mayer Dallal
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