If the entire Subprime/credit crisis disaster would not have had such dire consequences, the following story could be considered a joke as the “Fed plans new rules to protect future homebuyers.” Here is one of the highlights of these proposed revolutionary changes:
Under the proposal unveiled last December, the rules would restrict lenders from penalizing risky borrowers who pay loans off early, require lenders to make sure these borrowers set aside money to pay for taxes and insurance and bar lenders from making loans without proof of a borrower’s income. It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value.
[my emphasis]Wow; these are really earthshaking rules. Somebody will actually have to prove that he has income before buying a home? Ridiculous! And to top it off, the borrower actually has to show that he can make the payments? How low can you go?
We are living in the supposedly most developed and sophisticated nation in the world, and we are now coming up with rules and regulations that have been basic knowledge around the world for centuries. It’s a sad state of affairs that we now have come to a point where we have to state the obvious, that you simply have to be credit worthy to get any kind of loan.
How this fact has been “overlooked” by those underwriters responsible for its implementation during the formation of the housing bubble will always be a mystery to me. On the other hand, this mortgage fraud was one of the greatest pyramid schemes in history and, in my view, a once in a lifetime event. The consequence will be far reaching for years to come, and I sure hope that some justice will be served as it usually is when guilty parties to a Ponzi scheme are caught.
Comments 3
Ulli:
Many thanks for the wonderful website and weekly updates. You are one of the very few investment professionals who disclose what you do. Many thanks for this service.
Can you please write a column about:
1. Fixed income options. People talk about fixed income options in emerging markets, developed markets etc. Can you please tell us about them and some of the better ones you would consider for protecting the capital. I have noted that you prefer money market to hold cash. But it gives me low return and not even catching up with inflation. Will TIPs be a better choice than money market? Also, when you allocate your investments, do you allocate 60% for equities and 40% for fixed income? or it des not matter when you manage the money for your clients.
How do we locate the fixed income ETFs in your weekly news letter.
Thank
I must tell you that I am not very involved with using income funds. Last year, many lost more principal than they made via distributions. That makes no sense to me.
My preference is to invest for growth and then withdraw some of the profits to supplement your income, if you need to.
If you look at the StatSheet, you’ll find a section on Bond and Dividend ETFs. You need to make your own decision as far as selection is concerned, I do not favor any 60/40 allocation as you mentioned. I strictly follow trends.
Ulli…
Ulli:
Many thanks for your prompt response.