Banks Are Retreating From Housing Market: Whalen

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March 4 (Bloomberg) -- Chris Whalen, an investment banker and author, discusses the housing market and the state of mortgage finance with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Pavilion up in montreal.

He writes that the housing market presents "one of the largest real economic risks to the u.s. growth in 2014. ." the price increases we have seen are driven by constraint supply of homes.

Volumes are down.

Applications for new mortgages are at a decade low.

We just don't see the kind of fundamental support for the market.

New families, that you would hope to see.

What we're seeing is a reflexive market, which is still unwinding from the crisis.

Where is this concern coming from?

From the fed's monthly reduction in the stimulus or the job market or stagnant wages for people who already have jobs?

Jobs and income.

The thing to look at is the banks.

Because of dodd frank and the rules, they are retreating from the home market.

They really will only write mortgages.

Give the huge potential of home buyers in this country without lenders.

The average for fannie and freddie is in that 730 rain try now.

You know what the concern was before.

There will be a lot of people who could qualify to buy a home but the banks will see them as kryptonite?

There is no such thing as subprime lending.

You have fully documented loans.

The only question is, what is the price?

In the current regulatory environment, it is very difficult for banks to joseph justify taking a risk if it defaults and it will take them three years to resolve that situation.

In states like california, lender can get sued by a defaulted bar were for making a relatively minor error in the servicing or lending process.

A lot of risks.

The regulatory environment is not helping.

What should the regulatory environment be?

You have to have some rules.

Some of the rules were put in place that are very good.

Contact for the bar were.

Putting in place a really normative standard for making a loan.

Disclosure.

All the things you heard about during the crisis.

What about for the banks?

You and i totally agree -- we don't need to see the new agency that came out of the dodd frank law telling the banks with the price of mortgages ought to be.

We should not have legislated the way that prepayment penalties work.

If you as a low credit score bar were its mortgage come your score goes up immediately.

Another lender will come in and refinance you.

That first lender will lose money.

They're not going to do that.

Mark fleming is the chief economist on bloomberg radio.

He said the housing market is becoming more illiquid.

He says the slowdown we are seeing in sales as a result of not enough homes being available.

Is there a lack of inventory echo it is even scarier than that.

Think about 20% of all homes in this country still being underwater.

The penning on what state you look in.

Look in nevada.

35% are either underwater or don't have enough equity for the homeowner to sell.

What is the answer?

First off, the federal government should allow bankruptcy judges to restructure mortgages.

Right now, they're prohibited to do that.

We have to take a hard look at some of the dodd frank rules that make it much more difficult for lenders to make a good mortgage.

We don't have subprime mortgages anymore.

Everything has to be full doc.

What is the price?

We have one minute left.

Where have we gotten the story wrong?

It's not so much getting it wrong.

It the details coming out of the crisis -- people were so angry at the banks.

They were so angry at what ed happened -- what had happened.

They felt regulation was appropriate maybe don't want to go overboard.

That is been the story of the united states.

You go back to the great depression.

We put drewaconian policies in place.

We are actually turning the home sector into a drag on the economy.

It should not be that way.

We need to i just what we have done since 2010. chris weiland joining us in studio.

Still ahead, top lawmakers look

This text has been automatically generated. It may not be 100% accurate.

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