Attorney General Coakley has promulgated new regulations that would forbid mortgage lenders and brokers from making a loan unless they have a reasonable belief that the buyer will be able to repay.
My reaction: What kind of a world do we live in where we have to make a law to prevent lenders from making loans that they don’t think will be repaid? This surprising regulation really brings home the deep structural problems in our mortgage market. Everyone–buyers, lenders, brokers–decided it was in their interest to make ridiculous loan agreements, either because (in the case of buyers) they thought prices would go up forever, or because (in the case of the others) they took a commission on the loan but ultimately passed off the risk to others.
Perhaps the better answer is to restructure the market to make lenders’ and brokers’ incentives more rational–maybe by requiring them to retain part of the risk they have been passing off to far-flung investors?