Posted by
Bill Cherry on Sunday, July 20, 2008 11:14:20 PM
If one were to go back in time and review the sequence of events that not only caused the Federal Deposit Insurance Corporation and the Federal Savings & Loan Insurance Corporation to be formed and then what happened thereafter, it might be eye-opening.
But you'd have to consider the various bank and savings and loan association problems that caused it to evolve to what it is today.
Nevertheless, from almost the beginning, for a financial institution to be a member of the appropriate insurer, the institution had to be a member and pay dues based on its risk to the insurer.
If you owned a member bank that made lousy loans, you paid more in premium percentage than did the conservative bank of the same size.
So in essence what this meant was to be able to borrow Fed funds and insure the accounts of clients, each bank had to participate in the losses of the whole.
Perhaps the lack of membership by mortgage brokers in the federal backed loans they broker is the fly in the ointment. Perhaps mortgage brokers should be required to be members of an insurance corporation that guaranteed mortgage lending losses.
And perhaps that premium would be calculated and assessed on the default ratio of the mortgage broker.
After all, it's not very smart to allow mortgage brokers to generate income for themselves all the while knowing that they will not be held financially responsible for the loans they made that turn out to be burdens.
Copyright 2008 - William S. Cherry
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