Obama administration pushes banks to make home loans to people with weaker credit

[geek tragedy]

67. I'm in absolute agreement about "ability to pay" being the

biggest consideration. The real bomb going off was in 'near-prime' loans--neg-am or I/O, no-doc, high DTI, with DTi indexed off of teaser rate or something other than fully amortizing rate, etc.

You're obviously more immersed in the industry than I am, but don't MBS holders by definition hold the duration risk? Also, isn't prepayment a competing risk--the longer the duration, the less prepayment risk, and vice versa?

Interest rates will start going up, but that doesn't mean that prices will go down. Supply is still very tight--inventories are way down and can't satisfy the pent up demand being released now, which is leading to price increases. Part of that is the fact that new construction was shut down for years, and needs time to ramp up. Part of that is sellers don't want to sell unless they can (a) get a new mortgage and (b) find and afford a new place. Eventually supply will begin to climb, but if credit standards are even slightly relaxed, so will demand.

Renting is riskier than buying, long term. If you rent, you're almost guaranteed that your rent will climb on a yearly basis for every year you're alive. If you buy and lock down a 30 year FRM at a low interest rate, you've locked in your housing payment at the same level until retirement. And then you have an asset at the end.