Slap my forehead! Deja vu!

I was just looking back at some of my earlier posts and the one on August 8 caught my eye. There I reported that the Fed had pumped over $70 billion into the banking system, but that the S&L Bailout in the 1980's had cost the taxpayers over $150 billion.

Then, earlier today, I updated and republished my post for September 21. In a note at the beginning, I commented on the $100 billion fund some of the banks are setting up to bail out the bad loans.

Quick -- what is 70 + 100 ? Does $170+ billion injected into this mess to date cause any alarm bells to ring when compared to the $150 billion mess of the 1980's? What exactly did the Congress fix when they changed the banking regulations back then?

Let ME make a few suggestions:

1. Require PMI for all loans that exceed the 80% LTV ratio, and amortize that insurance premium into the life of the loan. If the borrower pre-pays, fine, but he should not expect to recover that insurance premium. If he takes out a real estate collateralized line of credit or second mortgage, either of those options should carry PMI if the total LTV on the property exceeds 80%.

2. Require that all securitized (essentially all Federally related) real estate transactions based on a collateral valuation be underwritten using a real appraisal, and that the appraiser be at minimum state licensed and chosen through a central clearinghouse in the same way that VA appraisers are assigned their appraisals. This would take the loan officers competely out of the loop as far as ordering appraisals, would do away with the de minimus loophole currently in place.

Those two items alone would put the home mortage industry back on a solid foundation. The opposition will come mainly from three groups -- the mortgage bankers themselves (they do not want to give up their power over the appraisers), the civil rights lobby (which will see the insurance requirement as a hindrance to minority home ownership because it would increase the cost to the no-down-payment buyer), and the Realtor associations, which are opposed to removing the de minimus loophole (and thus closing off a source of income to unlicensed valuators).

Maybe Congress can sneak it through in a bill giving themselves a raise.