The definition of crazy is doing the same thing over and over while getting the same result. During the early 2000′s, the government – and Wall Street – urged banks and mortgage companies to lower their standards and give creative loans to people with bad or marginal credit. The result? An epic meltdown that we are still trying to recover from today.
In the last few years, Wall Street has once again begun to gamble recklessly in the mortgage security market. And now we find out that the administration is pushing home loans for those same marginal consumers.
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs – including those offered by the Federal Housing Administration – that insure home loans against default.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.
Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.
“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.
Banks and mortgage companies are extremely leery of lending to these customers because the Dodd-Frank financial reform bill criminalized the process. If a consumer defaults on a loan, they can go to the new enforcement agency, the Consumer Financial Protection Bureau, and lodge a complaint against the lender that they were had – they didn’t understand the terms of the loan. If found guilty, the offender can go to prison for a long time. This is a decided discouragement against giving loans to people who are likely to default.
So what’s the rush? if consumers have “weak” credit as a result of the recession, let them build it back up by living within their means and paying their bills on time. And why should the taxpayer be on the hook for someone who has demonstrated in the past that they are irresponsible?
There are still millions of unsold housing units out there with the prospect that many of them will never be inhabited again. Some neighborhoods in Florida and Nevada still look like ghost towns. This is hardly the time to be pushing marginal credit risks into taking tens of thousands of dollars in new debt.
September 27, 2012
Ironically, Barack Obama led the effort that caused the mess that needs cleaning up. Barack Obama was a pioneering contributor to the national subprime real estate bubble – the attack dog that terrorized banks to make mortgage loans that they did not want to make. According to research by TheDailyCaller, about half of the 186 African-American clients in President Obama’s landmark 1995 mortgage discrimination lawsuit against Citibank have since gone bankrupt or received foreclosure notices. As few as 19 of those 186 clients still own homes with clean credit ratings, following a decade in which Obama and other progressives pushed banks to provide “booby trap” adjustable rate mortgages to poor African Americans.
The origins of our current Great Recession began neither with the Obama Administration, nor the Bush Administration, but with the Clinton Administration. In June 1995 President Clinton introduced his National Homeownership Strategy, which included the expansion of Credit Default Swaps (CDSs). President Clinton, Vice President Gore and Secretary Cisneros announced the administration’s comprehensive new strategy for raising home-ownership in America to an all-time high. Representatives from ACORN were guests of honor at the ceremony. In his remarks, Clinton emphasized that: “Our homeownership strategy will not cost the taxpayers one extra cent. It will not require legislation.” Clinton meant that informal partnerships between Fannie and Freddie and groups like ACORN would make mortgages available to customers “who have historically been excluded from homeownership.”
When President Clinton introduced his National Homeownership Strategy in June 1995, no one realized it would create the path of doom that would have such a long-term devastating effect on the economy, particularly for millions of Americas who experienced foreclosure. The volume of foreclosures, and foreclosure trends, are telling and underappreciated economic indicators for the American economy. Foreclosures accelerated as the Housing Price Bubble began to form in 1997. Based on Realty Trac, Federal Reserve, Equifax sources, in the last year of the Clinton Administration foreclosures were already on the rise even though the economy was expanding (470,000 foreclosures in 2000). The legacy of the National Homeownership Strategy would be millions of foreclosures during the Bush and then Obama Administrations.
As the table below shows, foreclosures still have not peaked. During the first three years of the Obama Administration, there have been 11,221,609 foreclosures that are expected to continue its trend upward in 2012 (for a 4 year total of approximately 16 million).
|Year||Foreclosures||Foreclosure Filings||Home Repossessions|
Barack Obama and the Citibank Lawsuit
It is important to note that the last four years of the Clinton term experienced a housing boom, driven primarily by subprime homeownership, which helped balance the budget, create millions of jobs in housing, and eliminated unnecessary entitlements. Unfortunately the nation is now paying for the ill-fated redistribution of wealth policies of Obama, Clinton, and other progressives. Their Subprime Social Engineering experiment lead to the real estate market collapse and Great Recession (2007-12) that we are mired in today, and will be for several more years.
Congress passed the Community Reinvestment Act in 1977. Congress repeatedly expanded the law, and in combination with Clinton’s regulators, effectively gave liberals in government the power to greatly harm a bank’s business if it did not increase minority mortgages. Citibank felt this pressure when it sought federal approval for a merger with Travelers Group in 1998. It only got approval from the Clinton administration after it promised to provide \$115 billion for subprime homeownership loans. Before striking its deal with the Clinton Administration, Citibank needed to get rid of the Chicago lawsuit by paying off Barack Obama and the other Chicago lawyers: the settlement provided \$950,000 for the lawyers, \$20,000 for each of the three named plaintiffs, and \$360,000 for the 183 other clients. (The \$1,965per client was not in cash, but coupons.) Although legal fees are customarily 33% of settlements, in this case, the team of Obama lawyers take was 66%.
“I think that the responsibility that the Democrats had may rest more in resisting any efforts by Republicans in the Congress, or by me when I was President, to put some standards and tighten up a little on Fannie Mae and Freddie Mac.” – Former President Bill Clinton (D-AR), September 25, 2008
“Like a lot of my Democratic colleagues I was too slow to appreciate the recklessness of Fannie and Freddie. I defended their efforts to encourage affordable homeownership when in retrospect I should have heeded the concerns raised by their regulator in 2004. Frankly, I wish my Democratic colleagues would admit when it comes to Fannie and Freddie, we were wrong.” – Congressman Artur Davis (D-AL), September 30, 2008
Presidents Clinton and Obama, Senators Reid and Dodd, Congressman Barney Frank, and the liberal media all owe an apology to former President Bush for not heeding his warning about reforming Fannie and Freddie. After only a few months in office, in April 2001, the Bush Administration’s first budget (FY02 budget) declares that the size of Fannie Mae and Freddie Mac is “a potential problem,” because “financial trouble of a large GSE could cause strong repercussions in financial markets, affecting Federally insured entities and economic activity.” The need for Freddie and Fannie reform was repeated at least 17 more times by Bush Administration officials.
When the Bush Administration came into office in January 2001, the subprime mortgage market was already a freight train that long ago left the station. Subprime mortgage activity grew an average 25% a year from 1994 to 2003, with the industry accounted for about \$330 billion, or 9%, of U.S. mortgages in 2003, up from \$35 billion a decade earlier. The Mortgage Bankers Association of America (MBAA) reported that subprime loans in the third quarter of 2002 had a delinquency rate 5 1/2 times higher than that for prime loans (14.28 versus 2.54 percent) and the rate at which foreclosures were begun for subprime loans was more than 10 times that for prime loans (2.08 versus 0.20 percent).
Aided by Barack Obama and ACORN foot soldiers, the Clinton Administration actions of creating and pushing subprime mortgages has had a devastating effect on all American homeowners. Americans bought homes at inflated prices, which were further driven up by unscrupulous lenders and speculators. Collapse was inevitable. The resulting tremendous drain on wealth threatens the ability of families to send their children to college, and have any type of nest egg for retirement. This is just another example of Democratic politicians misguided social engineering interference in a market. Their interference not only did not work, but left us with a legacy of economic hardship and devastation.
And to think that President Clinton’s National Homeownership Strategy never would have happened if President Clinton did not win election in 1992, and reelection in 1996. Today we face an even more perilous economic future if we reelect President Obama, whose vampire socialism policies are only likely to continue to hurt all Americans, especially the poor and middle class.
Unfortunately, in a few short years, President Obama has done more harm than good. In particular, during the 2009 Christmas media lull, President Obama issued a series of Executive Orders that further distorted the real estate market:
Increased the amount – from $400 billion to unlimited – that the US federal government would commit to Fannie Mae and Freddie Mac in the event those agencies/companies could no longer service the mortgages it held/guaranteed.
Deregulated the total amount of mortgages that Fannie and Freddie can own or guarantee, enabling the GSEs to fully return to the lower-quality, higher-risk segments of the mortgage market. Fannie and Freddie currently finance roughly three-quarters of all new mortgages.
Empowered the Treasury Department to pressure the GSEs to hold more subprime/non-performing mortgages, instead of clearing the risk off their balance sheets. According to Edward Pinto, Fannie’s chief credit officer during the Reagan Administration, “They’ve (the Obama Adminstration) cleared the decks to use Fannie and Freddie as a vessel for whatever they want.”
Regarding Fannie Mae and Freddie Mac management, Kenneth Feinberg, an Obama Administration official, made statements supporting multi-million-dollar incentive-based compensation packages for senior executives, citing the unique stresses of the jobs. Sadly, these are the exact same type of compensation packages that were identified by regulators as prime enablers of the housing/financial crisis. (http://blogs.wsj.com/developments/2009/12/31/obamas-pay-czar-defends-fannie-freddie-compensation-deals)
Despite President Obama’s Executive Orders giving Fannie and Freddie access to unlimited funding, and the September 13, 2012 Federal Reserve announcement to buy $40 billion in mortgages a month (already were buying $25 billion), U.S. foreclosures will probably surpass a record 4 million in 2012 and continue to trend upward. As many Americans are instinctively aware, an Obama reelection and 4 more years of Obama Administration intervention will only further threaten our capitalist system. If you still have any doubts, ask any small, medium or large business person.
Subprime Economic Analysis The Affordable Mortgage Depression by Whitney Ross http://theaffordablemortgagedepression.com/2010/03/11/origin-of-the-housing-bubble-the-national-homeownership-strategy.aspx Housing Bubble, Financial Crisis – What Happened, Who is Responsible by T.J. Hancock http://tjhancock.wordpress.com/housing-bubble-financial-crisis-detailed-comprehensive-assessment The Nature and the Origin of the Subprime Mortgage Crisis by Thayer Watkins http://www.sjsu.edu/faculty/watkins/subprime.htm Foreclosure Rates US Census 1990-2010 http://www.census.gov/compendia/statab/2012/tables/12s1194.pdf Barack Obama Connection With landmark lawsuit, Barack Obama pushed banks to give subprime loans to Chicago’s African-Americans by Neil Munro September 3, 2012 http://dailycaller.com/2012/09/03/with-landmark-lawsuit-barack-obama-pushed-banks-to-give-subprime-loans-to-chicagos-african-americans/6 Subprime Bubble: Obama ‘Vampire Socialism’ Built It; Investment Business Daily Editorial 9/4/12 http://news.investors.com/ibd-editorials/090412-624522-obama-launched-subprime-crisis-with-lawsuit.htm?p=full