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Are you ready for Sub-Prime Mortgage Bubble _ The Sequel? You’re probably thinking you still haven’t recovered from the 2008 original. Well, if Mel Watt gets his way, the sequel will be coming to a neighborhood near you soon. Who is Mel Watt? He was named by President Obama last year to be Director of the Federal Housing Finance Agency (FHFA). If you recall, that is the agency that took the bankrupt Fannie Mae and Freddy Mac into receivership after the collapse of the original sub-prime mortgage bubble popped.
Prior to his appointment, Mr. Watt was a long time Congressman from North Carolina and before that he was a practicing attorney. According to Wekipedia, as a lawyer, Mr. Watt specialized in minority business and economic development law. It sounds like Mr. Watt’s has his roots in”community organizing”. Imagine that!
So, what is Obama’s clone proposing? As reported by the Wall Street Journal back in May and by Fox News just the other day, he wants banks to loosen their lending standards, so that those with poor credit ratings can buy a house and he wants the banks reduce their down payment requirements to just 3%. Does that sound familiar? Well, of course it does. It’s a sequel, after all.
Of course, Mr. Watt has all the politically correct rational for his proposal. It will spur the housing construction sector and create jobs! More importantly, it will help all those dead beat victims in America buy a house they can’t afford. But. Mr. Watt is a clever little rascal. He is working hard to get the bank regulators on board with his plan. That way, when the SHTF, he will have plenty of places to point all ten of his fingers. Not surprisingly he is working closely withe bankers, who don’t like that the regulations after 2008 are hurting their profits. The bankers, as you all know, just want to help the less fortunate among us. That’s is why they will package those mortgages into security back derivatives and sell them before the buyer’s signature has had a chance to dry. By the way, Zero Hedge had a guest post on Mr. Watt’s plan a couple of days ago. The author, Mike Krieger, found this interesting tid bit:
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While some observers consider Watt’s appointment a significant lurch to the left compared to DeMarco, (he was among those named by the Democratic Socialists of America as a member of their caucus in 2009), Watt himself has raised a tremendous amount of money from banking and real estate-related corporations and trade associations. One report from the Sunlight Foundation found that for 2009, Watt had received some 45 percent of his total campaign funds from donors in the finance and real estate sector.
Some things never change, do they?
Your humble observer of the asylum we all have to live in has some advice for you, dear readers: do whatever you can to make sure your pension funds do not invest in mortgage-backed-securities. Period!
Well, that’s what I’m thinking. What are your thoughts?
I’ve said before that you can expect an explosion of ethno based politics as engineered demographics is forced on the United States. Here’s a grenade to give you a little taste of what’s coming.
A group calling themselves the National Community Reinvestment Coalition filed a complaint with HUD, charging that some lenders were denying mortgages to those with credit scores that qualify them under HUD guidelines. Some lenders were only handing out loans to those with credit scores of 600+, while HUD only requires a minimum of 580 to qualify. If this proves to be the case, the NCRC would technically be in the right for filing the complaint. The Obama regime has promised to make it right.
One of the companies, Nationstar Mortgage LLC, is run by former Fannie Mae chief exec Daniel Mudd. He was booted out a few years ago when the Obama regime took over the burning building that the Democrats had set ablaze. If anybody understands the consequences of loaning money to those that can’t pay it back, it would be Mudd. If he is guilty of this, he clearly feels that the consequences of being caught don’t outweigh the risks of actually loaning the money to realistically unqualified borrowers.
This complaint was not filed on behalf of all who may have possibly been denied a loan.
The NCRC said the lenders were only providing mortgages to borrowers with credit scores higher than the 580 minimum required by the FHA, a move it said disproportionately affects African-Americans and Latinos.
Apparently, the NCRC feels this would only impact people of color. No surprise, considering what this ACORNian group is about.
NCRC has grown to an association of more than 600 community-based organizations that promote access to basic banking services including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America’s working families.
Yes, they are a community based organization. So is ACORN. They twist the arms of banks to give credit to those that realistically aren’t qualified. So does ACORN. They have the support of the Obama regime. So does…you get the picture.
The guidelines these companies are accused of violating are the ones that Democrats put in place. They are responsible for the explosion of Fannie Mae, and apparently haven’t learned a thing. Those with lower credit scores-regardless of ethnicity, are the lion’s share of defaults. Even with HUD insurance guarantees, these companies still engage in mortgage backed security schemes. Any default, insured or not is bad news. What I think of those MBS’ is another post. I will say I don’t like them.
Although everybody is wrong in this case, you can’t provide justice for one group without discriminating against another in general. In order to provide an opportunity for those with otherwise unacceptable credit scores to obtain mortgages, the government is discriminating against the companies who make those loans. They are being forced to do business with those they otherwise wouldn’t, and it has nothing to do with race or ethnicity. It has to do with money. This isn’t the only example of how wealth redistribution in the form of political correctness is damaging this country.
For me, it’s clear that the CRA was a massive piece of Cloward-Piven. By combining the Alinsky Method with government regulation, community organizers were able to get millions of essentially bad mortgages written. While they didn’t pressure directly for all of them, the pressure that they did bring to bear was a significant factor in the rise in sub-prime mortgages. Banks knew that they were stuck between community organizations from below, and the Government from above.
Of course, the banks tried to make them profitable, and attempted to minimize the risk by spreading them out via MBS. However, when so many of the mortgages failed, nothing could stop the cascading failure that resulted.
The community organizations also got an additional benefit. They could pressure banks into making these crappy loans. Then, when the mortgages went unpaid (predictably), and the bank forclosed, they could protest the banks for making the loans that they pressured them into making in the first place. They simple labeled it as “predatory lending.”
So, is it failed social engineering, or was it Cloward-Piven? I, personally, have a difficult time believing that everyone on the left thought that this would actually work. I think people closer to the top knew what would happen, and they were happy to use community organizations as their foot soldiers to make it all come to fruition. Of course, they are reloading, and going at it again. They are using the hopes of the poor, as well as class warfare and race, to justify more and more of what caused the recession in the first place.
It’s clear that this, if not stopped, is only going to reload the gun that caused the current economic mayhem. But, then again, think about what the left was able to do with the resulting economic crisis? It really gave Barak Obama something to run with. It was the justification for TARP, the Porkulus, financial reform, Cash for Clunkers…the list goes on an on. For the most part, each of the items I mentioned did not actually change or reform anything, but only gave the government more and more power. After all, our “progressives” never want a crisis to go to waste.
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?
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 theCommunity “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.