'Eminent Domain for the People' Leaves Wall Street Furious

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49. well

(1) To your point about other countries, well once bitten twice shy? I cannot imagine any investor ever willingly buying mortgage pools from a city that seizes mortgage loans using eminent domain.

(2) At the end of the day, someone needs to originate the loan, even if it's passed on to other end investors. That almost certainly means a bank or a mortgage broker. Who else has the community branches and on the ground presence required to appraise home values, meet with borrowers, sign legal documentations, etc.?

(3) The GSE's do not lend money directly (neither does the government or you or me). They buy conforming loans from the originators, securitize them, keep some and sell the remaining to investors (with guarantee).

The problem wasn't that the banks were not willing to lend. They were all to happy to make loans and pass it on to other investors through agency and non-agency securities. Where traditionally they would have kept the loans on their balance sheet (taken on the underwriting risk), now they have every incentive to make loans a volume business to earn the origination fees. Hence all the liar no-docs loans. After all, if the loan defaults, it's someone else's problem (there's this whole reps and warranties settlement going on).

So, if the banks stop lending because cities start seizing mortgages, there really is no one else available to originate the loans. You can't go to the GSE's to ask for a loan.