I bet ya missed this little sign when ya cashed yer pay check last Friday.
What more could ya ask fer?
Posted on 09/19/2008 7:48:45 AM PDT by ar15cz75
Neal Boortz Friday, September 19, 2008
What in the world is going on here?
You’ve seen the headlines, and you heard of the failures and buyouts. Lehman Brothers, Bear Stearns, Merrill Lynch, AIG; all big names and all in big trouble. Then those mysterious quasi-government agencies with names like Freddie and Fannie become wards of the state and you learn that you and your fellow taxpayers are potentially on the hook for tens of billions of dollars. At the end of the week Washington Mutual is looking for a buyer, and you start to wonder about the security of your own bank and your own savings account. Let’s change that ad copy to WaMu -- boo hoo.
Somewhere in the back of your mind you understand that this is all tied somehow to bad mortgages. If you start reading a bit further to enhance your understanding you run into terms like Mortgage Backed Securities (MBS) and credit-default swaps, whatever in the world those are. Read further and you find out that a combination of falling home prices and mortgage defaults have put many investment banks and other financial institutions in deep puddin’. All this reading, all this watching the talking heads on TV, and you still don’t really know what in the world is going on here.
Fear not. I’m here to help. I know … I’m just another talk show host; but the fact is that when the stage was being set for the problems we’re seeing today I was making most of my money as a real estate lawyer .. closing loans for some of the very institutions that are the tank today. This rather unique combination – closing lawyer and radio talk show host – gave me a front row seat to the politicization of mortgage loans that led us to today’s headlines.
OK .. so we all know that a lot of really bad real estate loans were made. The political class would sure love for us to believe that the blame here rests squarely on “greedy” (try to define that word) mortgage brokers and lenders. The truth is that most of the blame rests on political meddling in the credit decisions of these mortgage lenders.
Twenty years ago the buzz-word in the media was “redlining.” Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd “redlining” claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.
Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage. These lenders knew that a very high percentage of these loans would turn to garbage – but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won’t mention his name so as to avoid politicizing this column.
These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.
Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we’re seeing is the inevitable result of political interference in free market economics. Acme bank didn’t want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn’t all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed – and now we are left to enjoy today’s headlines.
So … why aren’t you reading the whole story in the mainstream media? Come on, are you kidding me? Do you really expect the media to blame this mess on deadbeat borrowers and political interference in the free market when it is so easy to put the blame on greedy lenders and evil capitalists? Remember … there’s an election going on. One candidate is decidedly anti-capitalist. Do the math.
Neal summed it up perfectly, for that is exactly what has happened.
The American dream was once something one earned, not something one was given...
Am I just ignorant or is the plan being unfolded being backed by nothing but the government’s word that there is true value behind the dollar.
Boortz nails it in one page. This is another gift from Jimmah Cahtah and the Clintons.
expalined
We’ve been imPALINed. She’s in our hearts. Our hope is that through her, and of course a more conservative John McCain, we may be able to overcome the Politically Correct burdens and errors of our Dummocratic past.
Boortz’ article is spot on.
Thanks
Yeah, Clinton had so much trouble getting his legislation passed with his Dem congress, oops, I meant Republican Congress.
Get real, this across the board blame. The RINOS will get away with it if people keep blaming only Clinton.
Oh, the gift ain’t over yet. I understand the Democratic stipulations to go along with this train wreck is to amend the bill to include forced re-negotiation of minority mortgages with principle and interest reduction.
I want to know how quasi government entities like Freddie and Fannie could legally make huge campaign contributions to the likes of Pelosi and Obama.
No, it’s not. Boortz is completely in the wrong here.
50% of the Subprime loans came from companies who did not have to follow the CRA. Non-CRA banks made twice as many subprime loans as the CRA regulated banks.
It wasn’t the government who force AIG to go into Credit Default Swaps. The Government did not force the credit rating agencies to give the papers AAA ratings. The Government didn’t force the Hedge and Mutual funds to buy this worthless paper.
I agree. If Senator McCain and Governor Palin can hammer and hammer and hammer this home - they will landslide the election. But they can’t be nice about it, because for every ad they place telling the truth, there will be 20 ads from the left, lying. Hopefully grass roots conservatives will take it on themselves to spread the word too, and support all Republican candidates in the house, making sure said candidates understand the meaning of “fiscal responsibility” and promise to pursue that road diligently.
The sorts of low-income loans Mr. Boortz rightly decries are only part of the problem. We didn't just see poor credit risks going into the lenders to try to get mortgages ... we saw the lenders very, very aggressively pursuing poor credit risks.
Why? Simple: because some clever folks realized that money could be made by issuing these loans, and then selling them to somebody else. The original lenders were quite often never at risk for these poor loans.
Huge institutions like CountryWide snapped these loans up, with eventual results that we can recall from the events of the past year.
So, yes ... one could say that issuance of loans to poor credit risks is part of the issue; but it's probably more correct to say that aggressive efforts on the part of sharp operators were the driving force.
this must be the bill i was looking for - anyone know the bill number? i want to know the specifics of these laws that we are told that were passed - especially how institutions were 'forced' to make these loans
I agree. I was watching CNBC and it was like foreign language station,but no as entertaining.
I bet ya missed this little sign when ya cashed yer pay check last Friday.
What more could ya ask fer?
Thank you - I was about to post the same thing. In its heyday, I would receive at least 3 offers a day in the mail from mortgage outfits that seemed to spring up overnight, up and down the Cali coast, telling me they didn’t care what my credit score was, etc. (I now receive none). I know Countrywide bought up my subprime loan in 2000 and I have made every payment and refi’d twice, always at a lower interest rate, as my credit score improved. I have wondered if Countrywide, BofA, etc., purchased this paper on the belief that the originating loan company had thoroughly “vetted” the consumer and had paperwork. The originator didn’t care if they were selling bad paper - they’d already gotten their fees and it was now Countrywide’s problem when payment didn’t materialize.
I also think some blame can be assigned to unscrupulous appraisers who had no trouble over-valuing a house to qualify for a loan or a refi. We are finding this to be the case in my neck of the woods in California.
Jenny, that's a mighty wide brush yer using today. Some of us might not be included in your "all".
That is unless ya wanna count those of us on the selling end of the transaction in the "all".
This story does not give the bill numbers, but it should provide you with enough clues to google what you want.
Now, the conventional loans, Fannie and Freddie, also wrote riskier, no income loans. They also did debt ratios up to 65% of the gross income with 0 down payment.
FHA, the best kept secret in this whole mess, has a delinquency rate currently at around 20%. In addition, FHA is STILL writing these riskier loans (3.5% down with credit scores under 580).
These underwriting standards all came into existence during the same period.
My point...yes, the market did bow to political pressure and also realized a way to make greater profits my making these loans and then selling these in a deceptive manner (ratings) to investors.
No, they had no such expectations. Just as the sharp operators figured out how to make money as the originators of questionable loans, big companies like Countrywide figured out how to make big money from buying and trading them.
If you recall from last year, Countrywide et al. would buy "bundles" of loans essentially betting that, taken as a whole, the losses from the inevitable defaults would be outweighed by the money made by loans that were being properly repaid.
The problem with that model was (IIRC) that a huge derivatives market developed around these bundled loans, and that market collapsed (for various reasons).
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