Tag Archives: sub-prime mortgages

Here We Go Again

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Remember the housing bubble that collapsed in 2007? There were a lot of reasons for that collapse–Congress was not innocent, the government encouraging sub-prime mortgages, putting quotas on mortgage companies telling them who they could loan money to (regardless of income qualifications), etc. Well, the government is in the process of laying the groundwork for a similar crisis.

On Friday, Hot Air posted an article by Stephen Moore about some current government actions that will have results similar to the housing bubble collapse of 2007.

The article reports:

Here we go again. The latest scheme by the Biden administration is to encourage families to borrow more money by using the equity in their home as collateral. Home equity loans are often very risky. If prices fall, home equity can become negative. There is nearly $18 trillion in home equity, and it’s one of the largest sources of savings and ownership for American families.

Now the Biden administration wants to encourage Americans to borrow even more at a time when credit card and auto debts are at an all-time high. If homes fall in value, families could slip underwater and default — just like during the subprime crisis.

As The Wall Street Journal points out, the other “likely losers” from this scam “would be taxpayers.” The evidence is indisputable from 2008 that the mortgages that ended in default were low-down-payment and low-equity loans.

Why in the world would President Joe Biden want to go down this dangerous road again?

In 2009, I shared the following information (here and here):

The bank is East Bridgewater Savings Bank which has no delinquent loans or foreclosures on its books.  The bank didn’t even need to set aside in money in 2008 for anticipated loan losses.   From late 2003 through mid-2008, East Bridgewater Savings made an average of 28 cents in loans for every dollar in deposit — a sharp contrast to the 90 percent average loan-to-deposit ratio among similar banks.

The FDIC recently criticized this bank for not lending enough, slapping it with a “needs to improve” rating under the Community Reinvestment Act, the Boston Business Journal reported.

According to the article:

“East Bridgewater Savings ended 2008 with $135 million in assets, deposits of $84 million, $87,000 in profit, and a Tier 1 risk-based capital ratio of 31.6 percent — more than three times higher than many community banks in Massachusetts, the Journal reported.”

It seems to me that this sort of behavior on the part of the bank should be praised–not criticized.  It used to be good business to lend money only to people who were likely to pay it back!

The average consumer has more common sense that the economic ‘experts’ in the government!

A New Face

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The Washington Times reported on Thursday that Kathy Kraninger has been confirmed as the Director of the Consumer Financial Protection Bureau (CFPB) and will serve for the next five years.

The article concludes:

Meanwhile the CFPB is still facing major legal hurdles.

Some federal judges have ruled that by placing so much power — including an independent budget that Congress doesn’t control — in a single director, the CFPB violates the Constitution. But a ruling earlier this year by the full U.S. Circuit Court of Appeals for the District of Columbia upheld the singe-director structure.

Let’s take a look at the inception of the CFPB. The CFPB is the brainchild of Massachusetts Senator Elizabeth Warren. It was passed as part of the Dodd-Frank Act. The Dodd-Frank Act was Congress’ way of dealing with the housing bubble that caused the recession of 2008. However, the congressional solution was aimed at banks and Wall Street. It made no mention of the role that Congress had played in creating the housing crisis and made no effort to take responsibility for their actions or prevent a repeat of the problem.

In 1995 The Community Reinvestment Act (CRA) was changed, allowing Fannie Mae to purchase $2 billion of “My Community Mortgage” Loans, pilot vendors to customize affordable products for low and moderate income borrowers. Some of the things done to make the loans more affordable were low (or no) down payments and variable interest rates. Fannie Mae guarantees mortgages and then sells them to banks and investors. Banks were forced to issue sub-prime mortgages or pay large penalties. As more people took out mortgages, the price of houses rose quickly.  In 2005, 91 percent of Fannie Mae loans were variable rate loans. In 2004, 92 percent of Fannie Mae subprime loans were variable rate loans. Interest rates rose, gas prices increased, and people could not pay their mortgages. The subprime market collapsed, and foreclosures increased rapidly. Banks stopped making mortgage loans.

There were efforts made to stop this train. On September 11, 2003, The New York Times reported:

Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

…a new agency would be created within the Treasury Department to assume supervision  on Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

The Democrats opposed the reform. Barney Frank, a Democrat from Massachusetts, said that it would mean less affordable housing. Melvin Watt, a Democrat from North Carolina, said that it would limit the ability of poor families to get affordable housing.

In 2005, John McCain warned of a coming mortgage collapse. He sponsored S.190 (109th), Federal Housing Enterprise Regulatory Reform Act of 2005. The Democrats blocked it. It was again brought up and blocked in 2007.

Opensecrets.org lists campaign contributions to politicians. Fannie Mae gave generously to insure that it would not be regulated. Some Democrats and Fannie Mae executives had ‘sweetheart’ loans from mortgage companies that were heavily involved in sub-prime mortgages.

So where am I going with this? The housing bubble was created by bad legislation. Bad legislation continues. In August 2016, The New York Post reported:

The Obama administration is doing its best to give the nation another mortgage meltdown.

As Paul Sperry recently noted in The Post, Team Obama has pushed mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.

Wasn’t the last one bad enough?

Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.

The Federal Housing Administration and government-sponsored “independent” lenders Fannie Mae and Freddie Mac have been demanding lower credit standards — just as the feds did starting under President Bill Clinton, in pursuit of the same “affordable housing” goal.

Some borrowers need only put 3 percent down to get a Fannie Mae loan — even if the downpayment is a gift. Fannie also has started up a new subprime lending program.

The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”

The Consumer Financial Protection Board (and Dodd-Frank) were not related to the cause of the 2008 recession–the recession was the result of bad laws. Both the CFPB and Dodd-Frank need to go away. They are nothing but a blatant example of government overreach.

Undoing The Economic Damage Done By President Obama

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Like him or not, President Trump is a businessman. He has also encouraged Congress to do things that make sense from a business perspective. He worked hard to undo the damage done by the economic policies of the Obama administration–he has decreased regulation, lowered corporate taxes, and it working hard to put Americans back to work. Well, it looks as if Congress has also decided to help encourage the American economy.

The Daily Caller reported yesterday that the Senate had voted 67-31 to roll back some of the provisions of the Dodd-Frank bill. At this point I need to mention that the Dodd-Frank bill was a supposed solution to the housing bubble, but never actually addressed the read source of the problem. The video below explains the true source of the problem.

Below is a nine-year old YouTube video I have repeatedly posted. It is the most honest history of the housing bubble I have seen. It is embedded because I am afraid that someday YouTube will take it down:

The DC Caller Article reports:

Seventeen Democratic senators joined Republicans in the Senate to approve the roll back.

The bill is the brainchild of Senate Banking Committee Chairman Mike Crapo and aims to rework a number of the protective barriers Dodd-Frank put between consumers, banks and the greater economy in the wake of the 2007-2009 Great Recession.

“This bill has received widespread support for good reason: the cycle of lending and job creation has been stifled by onerous regulation,” Crapo said on the Senate floor prior to Wednesday evening’s vote.

Dodd-Frank was originally intended to increase transparency by implementing a consistent set of regulations aimed at closing loopholes and making firms accountable for their own mistakes. The bill attempted to shift the burden of major financial mistakes from taxpayers to market participants, ensuring those who partake in risky investment practices would bear the financial burden of their mistakes. Dodd-Frank promised to “end too big to fail” and “promote financial stability.”

Large banking institutions have grown dramatically since the passage of Dodd-Frank despite the act’s intentions, and small community banks have incurred serious losses as they try to keep up. Crippling regulations saddled smaller banks, forcing American consumers to market with fewer investment vehicles and greater costs.

Even if Dodd-Frank were actually attempting to address the true cause of the housing market collapse, it failed miserably.

There is some question as to whether or not the bill can pass in the House of Representatives.

Just as a reminder, I would  like to post the content of an article that I wrote in March of 2009 here:

I don’t have a link on this because I don’t want to get people in trouble.  This is a true story, but I will leave the specific names out.  This is truly a tale of the upside down world we currently live in.

There is a small local bank in a city in Massachusetts.  It is not a rich city, and the city has the reputation of being a rather ‘rough’ city.  The bank is a small local bank that has probably been in business for twenty or thirty years.  The bank has had no foreclosures on property that it owns this year.  The bank had made a small profit last year.  Almost (if not) all of the mortgages the bank has given out are current.  No property is currently in foreclosure.  This rather quiet little bank is simply doing its job of being a small, local bank as best it can.

Last week the bank got a letter from the federal agency that regulates the bankling industry in this country.  The letter had done its annual review of the bank and was sending the results to the bank.  The letter was highly critical of the bank–the agency felt that the bank had not created enough sub-prime mortgages and that it had not done enough lending to people in lower income brackets with bad credit ratings.  Duh.  That’s why the bank is not in need of bailout money!!

The time has come for a little common sense on the part of the government.

The real cause of the housing crisis was the federal government. How can we manage to get them under control?