Two recent news items are causing jitters to put it mildly :
From the April 2, 2013 Washington Post : The Obama Administration is engaged in a broad push to make more home loans available to people with weaker credit.
Obama's economic advisors say the housing rebound is leaving too many people behind. Pressure is being put on Fannie Mae and Freddie Mac to guarantee more mortgages without regard to credit ratings. Banks are being told to be more "subjective" in deciding whether or not to make mortgage loans.
Here's a related item from today's N.Y. Times : Banks have been busy fobbing off credit risk by reviving the same garbage instruments they created that led to the last Financial Crisis. They have been renamed as "structured financial products" but are still the same CDO's that got everybody into trouble just a few years ago. This year alone, banks have issued $33.5 billion in bonds backed by commercial mortgages. More than they issued back in 2005. Initially issued with various "protections" many are now being issued "naked" as demand has increased. The "safest" are paying twice the interest being paid on Federal debt.
Dodd- Fwank was SUPPOSED to create more and better safeguards for this type of thing. In reality the banks are making loans and issuing bonds based on loan bundles as though nothing happened back in 2007 and 2008. While lower than before the Crisis, the percentage of loans that are "interest only" has crept back up to 34% from a low of 11 % two years ago. Demand for these loan pools is so high that LENDING STANDARDS HAVE BEEN RELAXED. Somebody please pinch me and tell me this is NOT happening.



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