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Housing's Four Horsemen: Fed Slams Door After Horses Leave

This would be amusing if it wasn't so damn sad: (Reuters) - Lenders would be required to make sure prospective borrowers have the ability to repay their mortgages before giving them a loan, under a proposal released by the Federal Reserve on Tuesday. Under the first scenario the loan could not include interest-only payments, a balloon payment and regular payments could not result in the principle of the loan increasing. Under the alternative, the loan would have to meet all the standards laid out under the first option and meet additional requirements such as having the lender verify a borrower's employment status and debt obligations. That this has to be implemented now is an outrage. How can a financial institution claim to have "sound loans" (or have made and sold "sound loans") that didn't meet this requirement up front? The answer is obvious: The Fed intentionally refused to enforce its statutory duty as a primary regulator in the marketplace during the 2000s. They weren't alone, of course. The FDIC, OTS and OCC were all complicit in this game. There's one problem here with these standards, if they're actually enforced: They make home price ramps impossible except through one means - the acceleration of household income. Good luck doing that while we remain a nation that offshores our labor to China and India due to wage and environmental arbitrage. Jobs in the "FIRE" industries are nearly all parasitic as they only move money around - they don't produce anything. As a result you have to have a base of production on which that leach can attach itself, or the entire game comes crashing down on your head. Bottom line: Forget about housing "participating" in any alleged "recovery", and since equity extraction is now and has been negative for some time, the only thing that's keeping the market "buoyed" is the mainline heroin injections from The Fed's "free money" games. That will be forced off the field of play as the dollar continues to decline and threatens to become a disorderly rout, exactly as it was in 2008. It would be good if your preparations were complete at this time.

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