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More Government Lunacy - The Mortgage Crisis

By maxwell edison ·
Disclaimer: I'm not blaming any particular politician or office holder (neither President Clinton nor President Bush, for example), but rather showing the absolute lunacy in expecting government to solve personal problems or to meddle in private citizens' affairs.

Rewind the clock to the early 1990s: President Clinton, with the blessing of both Republicans and Democrats in Congress, advanced an agenda which they called, The National Homeownership Strategy: Partners in the American Dream. (Do a Web search.) In short, it encouraged mortgage lenders to loosen-up their requirements for those seeking mortgages, thus making home ownership available to those who otherwise wouldn't qualify - in other words, for those who couldn't afford it.

The government, as a result, relaxed requirements for the federal guarantee on those mortgages: lowered income to payment ratio, relaxed income verification, reduced (or eliminated) down payments, etc. Mortgage lenders, as ones who issued those government backed loans, were encouraged - or possibly directed - to follow suit. (I say directed to follow suit because those lenders had to follow government rules if they wanted to continue to be able to issue FHA loans.)

Fast forward to 2000: The National Homeownership Strategy: Partners in the American Dream, is a "..... public-private partnership working to dramatically increase homeownership opportunity in America. Under the directive of President Clinton, the Partnership was formed in 1995 by nearly 60 national organizations that care about homeownership. Today, the Partnership consists of 66 members representing lenders, real estate professionals, home builders, nonprofit housing providers, and federal, state and local governments.

HUD Secretary Andrew Cuomo said: ?The good news as we mark National Homeownership Week is that homeownership in America is at record levels. But the bad news we face is that many of HUD?s homeownership and other programs are under attack by some members of Congress. The success of our homeownership initiatives proves that HUD in combination with local organizations can further our goal of even more homeownership and fulfill our commitment to liberty and equity for all.?


Okay, isn't that nice? I wonder? Who were those members of Congress "attacking" it? What were they attacking? And what were they predicting?

The immediate results: As a result of a huge increase in demand against a limited supply, home prices (and values) rose dramatically. In addition to the injection of even more home buyers (unqualified home buyers) into the market, many people used those increases in their home values to refinance other debt into the more attractive (tax deductable) mortgage debt. Moreover, mortgages are bought and sold on the open market, as they always have been. Historically, behind Treasury Bills, Mortgages were among the safest of all investments to buy. As a result, many investment banks bought those mortgages (government-backed mortgages, by the way).

The eventual (and inevitable?) repercussions: People began defaulting on mortgages they couldn't afford in the first place. Banks and Mortgage lenders were foreclosing at record levels. (Foreclosures are always a lose-lose proposition for both the buyer and the lender.) Home values began to plummet. Mortgage investments were losing value.

Fast forward to today: The government, with the blessings of Republican President Bush and a Democratic Party controlled Congress, is now in the process of bailing-out mortgage lenders who made bad loans to people who couldn't afford them in the first place. Moreover, investment bankers, who are also facing a huge crisis - because of the defaults on the mortgages they purchased - are also being discussed as possible government bail-out candidates. (Can you say 401(k) accounts?)

Who's to blame: Of course, greedy mortgage lenders and unscrupulous investment bankers are the easy targets. They're the ones currently being demonized, aren't they? They're the only ones being blamed, aren't they? Why not blame a meddling government? After all, who's more to blame, business or government? Or why not blame borrowers who had to know they were buying something they couldn't afford? No, we can't blame them; they were victims (sarcasm), weren't they?

Yet again, we see the failure of the private and public partnership, which really means more government control of private lives. And yet again, the taxpayers will bear the burden. How much will this add to our national debt - a debt that will burden future generations of Americans?

Whatever happened to the days of having to verify one's income and show the ability to repay a loan before one is issued? I guess that was before the government - in its infinite wisdom (dripping with sarcasm) - decided it would be politically expedient to make home ownership available to those who really cannot afford it.

Bottom line: The role of government IS NOT to solve personal problems, but rather to ensure a society in which people can find their own solutions and solve their own problems. The government CANNOT solve those problems; but it can do a masterful job at CREATING them. (I wonder if it's all planned, or if they really are that stupid!) When will people realize that?

If we knew then (in early 1990s) what we know now, what would we (should we) have done differently?

(Edited to fix a few formatting things.)

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If we knew

by The Scummy One In reply to More Government Lunacy - ...

it probably would not have made a difference. The greedy would still have done what they did most likely, and the buyers (many had the income, but soon after purchase lost their jobs) would likely still have bought.

Now IF the rules/regulations were not made, we probably would not be facing this now.

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Not - so-brief Response

"I wonder if it's all planned, or if they really are that stupid!"

Possibly both.

"If we knew then what we know now, what would we (should we) have done differently?"

Answer 1 (What should we have done differently?): I lack the knowledge necessary to provide an alternate, but I can say that we should not have passed that law.

Answer 2: (What would we have done differently?): Change the wording of the law so that enough people would be convinced to pass it anyway.

Nodice

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So I am to take it you are saying...

by jck In reply to More Government Lunacy - ...

That it is the responsibility of the government that private enterprise chose (in many cases) to:

- falsify income statements to make the loans go through
- not check income (I refuse to believe that a lender would loan money to someone who can not make the base payment on a mortgage no matter what you say...that's business suicide no matter who backs the mortgage)

Blaming the government for the ill-reputed practices of many private mortgage lenders who have done so, is like blaming the parent for their child stealing from the neighbors.

I agree with you...it is not government's role to solve personal problems.

However, it is their role to write law as well as fabricate rule and regulation to keep checks and balances in a fair, open market to prevent fraud.

Personally, I say let the banks fail and fold.

I say let shareholders go storm the homes of corporate officers who took $100Ms in compensation while they were doing corrupt and unsafe financial practices at their firms.

I am sick of government not writing law to make things work right because of the good ole boy network (it's not the form of government which is flawed, but those who are supposed to follow its model and do not do so)...

and I am sick of private industry not being held to a higher standard of business practice where unscrupulous practice is punishable and proper practice is rewarded.

I am about ready to promote the old bumpersticker slogan:

"Kill em all. Let God sort em out."

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"... I say let the banks fail and fold."

by OnTheRopes In reply to So I am to take it you ar ...

I've been saying that right along. It's their own damn fault for not doing good business. <br><br>
Same goes for the auto companies. They had their chance. If they didn't build better, longer lasting, affordable and fuel efficient vehicles it's just tough sh*t. Let somebody new step in to take their place.<br><br>
No more bail-outs at tax-payer expense. I don't see anybody bailing me out when I make a bad business decision. Why should big business expect it and get it?

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probably because...

by jck In reply to "... I say let the banks ...

they pay for the political campaigns?

That's probably why... lol

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That's probably why. The good ole boy network. <nt>

by OnTheRopes In reply to probably because...
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That has been my stance too

by The Scummy One In reply to "... I say let the banks ...

Why all of the bailouts. Because may businesses depend on being imporant enough for bailouts. Utilities that manage poorly, airlines, auto makers, and down the list.

Let them fail, others will move in. If need be (as in the utility companies) an outsourced service should be put in place tempoarily until things get straightened out.

Execs for these failed businesses should get NO Bonuses if they screw the company up!

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I'd even go one step further...

by jck In reply to That has been my stance t ...

Execs for these failed businesses should get NO Bonuses if they screw the company up!

If a corporation wants to go belly-up...the upper level management becomes fiscally responsible, and must repay all salary and bonuses from the period from which the company is found in bankruptcy court to have become not solvent.

Just watch the CEOs cringe as their $14M house in Aspen is sold off to pay back shareholders...or their investment accounts are liquidated as collateral.

If they can be rewarded for financial success from the corporate...they should be obligated to be responsible for its failure.

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I would SO love to see that. <nt>

by OnTheRopes In reply to I'd even go one step furt ...
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WOW -- Wouldnt that be something!

by The Scummy One In reply to I'd even go one step furt ...

however the govt. cannot even make politicians responsible for their actions, and you want them to pass laws like that? Good Luck!

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