As I looked over aspects of the PSN’s agenda to cover, I was struck by the irony that they have all sorts of ideas on how to deal with the housing crisis. Mind, you, they all seem kind and well…nice, but why are they even in a position to suggest them?
- Mediation Before Foreclosure: Mandatory mediation increases the chance that a mortgage will be modified so that the borrower can stay in their home, while not reducing the ability of the lender to refuse a modification request. By getting the opinion of a neutral party and forcing the lender to the table, foreclosures can be avoided.
- Maintenance of Properties Before and After Foreclosure: Legislation would require banks to repair properties before a home can be foreclosed upon, a key measure to preserving communities. Requiring new owners to upkeep foreclosed property will contain the effects of the subprime foreclosure crisis since lack of upkeep on foreclosed homes brings down the appearance and property values of the surrounding area. Upkeep requirements and penalties can offset this burden on communities.
- Notice to Tenants of Foreclosure: Legislation would require that tenants and others with interests in any building would have to receive notice of any pending foreclosure action. They would be given notice and greater protection from summary eviction with greater due process.
- Right to Rent after Foreclosure: Instead of foreclosure leading to millions of vacant properties, this legislation would allow homeowners facing foreclosure the option of renting their home at fair market rate. People facing foreclosure would be allowed to stay on as renters even if the foreclosure goes through, helping them keep a roof over their heads. The proposal requires no taxpayer dollars and would help preserve neighborhoods by keeping community members in their homes as long-term renters.
- Whistleblower Protection: Legislation would protect the employees of financial institutions from retaliation when they reveal criminal or unethical conduct by their employers, which can help bring predatory practices to light. Such free speech protection is essential to bringing these practices to light. States should also empower workers to resist pressure to engage in illegal or unethical conduct when an employee reasonably believes the company “to be in violation of any law, rule, or regulation, or to be unfair, deceptive, or abusive and likely to cause specific and substantial injury to one or more consumers.” This will empower the employee to stop the bad practice right away by refusing to cooperate.
As usual, the real detail, and therefore the irony, is in what they do not address.
As we on the right are aware, many of the factors that the PSN seeks to use government power and force to correct are problems that “progressives” caused in the first place. I covered this extensively on the page “The Democrats Caused the Housing Crisis.” You can look there for all of the details. We’ll cover the basic points here.
During the Carter presidency, the Community Reinvestment Act was passed. To summarize, it was an act of liberal “feelgoodery” than mandated that banks make loans within a radius of their branch offices. It was designed to fight the practice of “redlining,” in which banks would avoid making loans to people in low-income neighborhoods. Of course, there were all sorts of class warfare and racial connotations to redlining, so no one stood against this.
The legislation was upgraded at times during the intervening years, but during the Clinton administration, it received a major overhaul. Regulations were removed, criteria and targets were added, and the sub-prime mortgage became a major factor in the home lending business. These were not a consequence of the reforms; they were FEATURES.
For some background, kindly view this video. It shows Clinton appointees instructing banks on making the loans, and informing them that they carry greater risk.
After the regulations were removed, and the targets put in place, community organizations, such as ACORN, put huge pressure on the banks and government to make more and more loans to people that were unable to pay. Protests were held, threats were made, people were followed & harassed-all classic Alinsky method. So, loans were made for people with no assets, no income, and no chance of repaying the loan. Not only did that take advantage of the poor, and put the banking system at risk, those same community organizations started protesting again; this time against “predatory lending.” In other words, they protested against what they pressured for in the first place! No matter what the motivation, the risk for everyone was increased.
The solution to handling this additional risk was to bundle these mortgages into securities, and sell them as such. The general thinking was that by lumping them all together, having a higher percentage of failures wouldn’t bring down the whole thing. After all, a wall can lose a few bricks and still stand, right?
Apparently not, especially when millions of those bricks fail.
Now, before I’m accused of leaving out many details, these mortgages were not the exclusive cause of our current woes, but they are a HUGE factor. And, it’s still going on today. Here’s what I wrote about it in the spring of 2009.
Yesterday, we discussed that the banking industry was being portrayed as evil because they did what the government told them to do. You know, offering mortgages to people without sufficient income to pay it back, offering variable rates, having Freddie and Fannie offering to guarantee the bad mortgages no matter what, and so on.
Well my friends, there is another sort of bank. There are a few like this one, so let’s take a look at an example, shall we?
Here is a list of the sins this bank committed:
Bad or delinquent loans? Zero.
Money set aside in 2008 for anticipated loan losses? Nothing.
Now, now dear reader, I know what you’re thinking, “This should be a good thing, amirite?” Well, that’s not the case. Here’s more…
Joseph A. Petrucelli is one of the most cautious bankers in America.
In fact, Petrucelli is so cautious that the Federal Deposit Insurance Corp. recently criticized his bank for not lending enough.
The FDIC’s negative review of East Bridgewater Savings Bank’s loan volume is an anomaly in today’s current banking scene as lenders reel from their role in offering too many cruddy mortgage products to borrowers with weak credit.
Still, the FDIC slapped East Bridgewater Savings with a rare “needs to improve” rating after evaluating the bank under the Community Reinvestment Act.
From late 2003 through mid-2008, East Bridgewater Savings averaged 28 cents in loans for every dollar in deposit. The average loan-to-deposit ratio among similar size savings banks is more than 90 percent, FDIC data show.
“There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area,” the FDIC said in its CRA evaluation.
FDIC examiners also faulted East Bridgewater for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages. (Emphasis Added)
OK now, we have references to the Community “Redistribution” Act, or CRA. You know, all those regulations that ORDERED banks to make bad loans? You know, all the variable rate mortgages, all of the people getting loans that had no income? You know, all the regulations that eliminated many of the protections in the mortgage industry?
So, we are left with this; One group of banks are evil because they did what the government ORDERED them to do, and then here is this bank, who is evil because they didn’t do what the government told them to do. As a result of not making bad loans, they aren’t in fiscal trouble and have no need of TARP monies. They haven’t thrown people out of their homes and they didn’t make variable rate loans (predatory lending in libspeak). For doing none of these things, they are just as evil as the other banks!
Well, here we are. “Progressive” policies caused an economic crisis. Then, “progressive” groups, like the PSN, seek to propose more “solutions” to the problems that “progressive” policies caused in the first place. Of course, while the goals seem kind and helpful, they do have the side effect of giving the government more and more power.
Or is that a feature?