Ever since former Fed Chairman Alan Greenspan started the central bank down a path of Keynesian madness, the entire economy has been based on a series of bubbles, crashes, and more bubbles. And most notable and recent of these bubbles was the one involving housing that not only popped in early 2007, but led the Credit Crisis that changed banking and monetary policy forever.Seven years later, Greenspan's successor proved to be little more than a parrot, where underneath Bernanke's erudite rhetoric about using Quantitative Easing (QE) to recover the general economy, the reality was that the fraudulent Fed head sought to rebuild the very industry that had nearly brought down the global financial system in 2008. And in a new announcement on Dec. 5 by the nation's largest mortgage underwriter, the new housing bubble has finally come full circle, and the clock is now ticking for its inevitable bursting.
Don't have income? Don't have a good enough credit score? That's ok! As long as the renters you intend to have live in the house do!
"It could be a credit problem, it could be an income problem, it could be an employment history problem, it could be a debt-ratio problem. There are a number of things that can affect a person's situation," said Chris O'Connell, a licensed mortgage loan officer with Nations Reliable Lending in Edina.
Mortgage giant Fannie Mae recognizes these hardships, and in response will soon offer a new kind of mortgage with new rules designed to add flexibility for borrowers.
"They've recognized that households have changed and our guidelines need to change with it," said O'Connell.
HomeReady will consider incomes from others planning to live in the house without being a borrower on the loan.
This means, if you live with parents, siblings, working children or maybe a roommate, as long as they make 30 percent of the household income, Fannie will include their money to help you qualify for a loan.
These are being called "non-borrowers" by Fannie. - Fannie Mae
In 2006/07 it was sub-prime mortgages and their paper to fuel mortgage backed securities (MBS) that led to the industry's crash and subsequent Credit Crisis. Now sub-prime has returned in a bizarre modified form where the one signing the mortgage can claim the income of anyone who actually will reside in the home to be eligible for a loan.
(Perhaps parents can leech off their millennial children after all)
The bottom line is that the banks no longer have any assets to invest their cheap borrowed money into, and without a growth in the velocity of money on Wall Street the deflation our economy is seeing now will shatter the financial system as current assets lose value, and the banks have no way of paying off their debt obligations. And perhaps it is ironic as well that earlier this week the Fed passed a new law shutting off the Emergency Window for the banks in what appears to be an acknowledgement of a coming crisis, only this time both the Fed and the banks have no more aces in the hole, and only desperation to get the public on the hook one last time.
Fool me twice. Shame on me.