S
Scotius
Guest
On Wed, 19 Dec 2007 17:21:52 -0800 (PST), "Kickin' Ass and Takin'
Names" <PopUlist349@hotmail.com> wrote:
>The Conservative Origins of the Sub-Prime Mortgage Crisis
>Everything you ever wanted to know about the mortgage meltdown but
>were afraid to ask.
>
>by John Atlas and Peter Dreier
>Hardly a day goes by without a news story about the accelerating
>number of foreclosures, an economic tsunami that is causing chaos in
>the housing and stock markets, the banking industry, and the global
>money markets, not to mention upending families and neighborhoods.
>Business leaders, activist groups, and Democratic presidential
>candidates are calling for our government to do something before the
>situation declines even further. The problem is worsening in every
>part of the country, but two early primary states -- Florida and Nevada
>-- are among the hardest hit.
>
>The crescendo of criticism recently pushed President George W. Bush to
>announce a plan to freeze interest rates for up to five years for some
>homeowners who purchased homes with high-risk adjustable rate
>mortgages (ARMs) that are scheduled to be "reset" at higher rates, in
>many cases, by hundreds of dollars a month.
>
>The Republican candidates for president generally supported the Bush
>plan but were reluctant to call for further regulations to protect
>borrowers. Some pundits, including former Texas Rep. Dick Armey, a
>right-wing Republican who now runs a conservative think tank,
>FreedomWorks, suggested that the Bush plan violated the president's
>oft-spoken zeal for allowing the "free market" to work. The media fell
>for Bush's media spin, describing it as a interest rate "freeze" and
>an "agreement" hammered out with lenders and investors. But in fact
>the Bush plan involves no mandates or legislation, just a voluntary
>agreement by lenders that lacks the force of law. There's absolutely
>no requirement that would force banks or investors to share the pain
>or be part of the solution. It isn't even clear if investors in
>mortgage-backed securities will allow the lenders to reset the rates.
>They may even file suit to halt the freeze.
>
>Consumer activists, and the Democratic candidates, pointed out that
>the plan excludes most sub-prime borrowers, including those who are in
>the deepest trouble and are delinquent on their mortgage payments and
>facing foreclosure. Of the perhaps 2 million adjustable-rate mortgages
>that are expected to reset through the end of 2009, only 240,000 of
>them -- 12 percent -- would be covered by Bush's proposal, according to
>Barclays Capital, as reported in The New York Times. The Center for
>Responsible Lending, a nonprofit group, estimates that only 145,000
>households will qualify for the rate freeze. Most borrowers will be on
>their own to negotiate with their lenders on a case-by-case basis.
>Many families who persuade banks to temporarily freeze their rates
>still won't be able to afford to make the payments, and will face
>foreclosure.
>
>"It's very disappointing," said Michael Shea, executive director of
>ACORN Housing, a national group that provides homeownership counseling
>for low-income consumers. "Wall Street has made billions and now
>they're hardly paying anything at all" for their role in the sub-prime
>crisis.
>
>Make no mistake -- it is a crisis. Since 1998, more than 7 million
>borrowers bought homes with sub-prime loans. One million of those
>homeowners have already defaulted on their loans The crisis is likely
>to get worse. Financial analysts predict that at least a quarter of
>these people -- over 2 million families -- will default and face the
>financial pain and psychological grief of losing their homes over the
>next few years.
>
>Bush, who once touted his administration's goal as creating an
>"ownership society," may now go down in history as the president on
>whose watch ownership declined. The nation's homeownership rate has
>fallen during the last two years and will plummet further next year.
>Moreover, Bush's unwillingness to take bold steps to regulate lenders,
>brokers, and investors will guarantee that the next president will
>inherit a much bigger mortgage mess.
>
>To many Americans, the crisis seems too complex to comprehend. To
>understand it, we need to know: What is the problem? Who benefited?
>Who got hurt? Who is to blame? Who should we help? What should be
>done? Although the immediate cause is the widespread use of sub-prime
>mortgages, the root cause is a decades old failure of government to
>adequately regulate the banking industry.
>
>What Is Sub-Prime Lending?
>
>Sub-prime lending is a fancy financial term for high-interest loans to
>people who would otherwise be considered too risky for a conventional
>loan. These include middle-class families who have accumulated too
>much debt and low-income working families who want to buy a home in
>the inflated housing market. To cover their risk, lenders charge such
>borrowers higher-than-conventional interest rates. Or they make
>"adjustable rate" loans, which offer low initial interest rates that
>jump sharply after a few years. Only a decade ago, sub-prime loans
>were rare. But starting in the mid-1990s, sub-prime lending began
>surging; these loans comprised 8.6 percent of all mortgages in 2001,
>soaring to 20.1 percent by 2006. Since 2004, more than 90 percent of
>the sub-prime mortgages came with exploding adjustable rates.
>
>With interest rates low, housing prices on a steady rise, and
>practically no government regulation, mortgage finance companies
>devised high-interest, high-fee schemes to entice families to take out
>loans that traditional savings banks would not make. Many of the
>lenders were legitimate operations providing a market for credit-risky
>people. But there also were huge corporations, such as Household
>Finance, that sought extraordinary profits through unsavory means,
>called predatory loans. Not subject to government regulation, they
>bent the rules, lowering normal banking standards.
>
>Mortgage brokers, the street hustlers of the lending world, often used
>mail solicitations and ads that shouted, "Bad Credit? No Problem!"
>"Zero Percent Down Payment!" to find people who were closed out of
>homeownership, or homeowners who could be talked into refinancing.
>They seduced millions of people into signing on the dotted line.
>Although sub-prime lending has been concentrated in minority and low-
>income urban areas, it has spread to the middle-class suburbs.
>
>The sub-prime lenders didn't hold on to these loans. Instead, they
>sold them -- and the risk -- to investment banks and investors who
>considered these high interest rate, sub-prime loans a goldmine. By
>2007, the sub-prime business had become a $1.5 trillion global market
>for investors seeking high returns.
>
>The whole scheme worked as long as borrowers made their monthly
>mortgage payments. When borrowers couldn't or wouldn't keep up the
>payments on these high-interest loans, what looked like a bonanza for
>everyone turned into a national foreclosure crisis and an
>international credit crisis. For millions of families, the American
>Dream of homeownership has become a nightmare.
>
>The mortgage meltdown has serious ripple effects. Foreclosed houses
>become vacant, deteriorate into eyesores, and detract from the
>neatness and feeling of well-being in neighborhoods. Vacant houses
>also attract crime and make it more difficult for neighbors to
>purchase homeowners' insurance.
>
>In neighborhoods with several foreclosed homes, property values, and
>thus local property-tax revenues, plummet, making it harder for cities
>to provide good schools, police protection, and other services.
>According to a new report by the U.S. Conference of Mayors, the weak
>housing market and the large inventory of unsold homes will likely
>reduce home values by $1.2 trillion next year. About half of that
>amount is due to the sharp increase in foreclosures.
>
>Who Benefited and Who Got Hurt?
>
>Mortgage brokers, who occupy an unregulated niche of the lending
>world, made a commission for every borrower they handed over to a
>mortgage lender. These brokers are like the drug dealers on the street
>corner. They are the smallest link in a lending chain that includes
>some of the largest and most respectable Wall Street firms.
>
>Large mortgage finance companies and banks made big bucks on sub-prime
>loans. Last year, 10 lenders -- Countywide, New Century, Option One,
>Fremont, Washington Mutual, First Franklin, RFC, Lehman Brothers, WMC
>Mortgage, and Ameriquest -- accounted for 59 percent of all sub-prime
>loans, totaling $284 billion.
>
>Wall Street investment firms set up special investment units, bought
>the sub-prime mortgages from the lenders, bundled them into "mortgage-
>backed securities," and for a fat fee sold them to wealthy investors
>around the world. According to The New York Times, China's second-
>largest bank, Bank of China Ltd, held almost $9.7 billion of
>securities backed by U.S. sub-prime loans. These investors, who bought
>the collateralized securities, were happy as long as they got paid
>their higher interest on the bonds or other investments.
>
>With the bottom falling out of the sub-prime market, more than 80
>mortgage companies went under in the past six months. Major Wall
>Street firms took billion-dollar losses as the crisis ripped into
>foreign money markets, from London to Shanghai. Lehman Brothers
>underwrote $51.8 billion in securities backed by sub-prime loans in
>2006 alone; as of September, 20 percent of those loans were in
>default, the Times reported. Similarly, about one-fifth of the sub-
>prime loans packaged by Morgan Stanley, Barclays, Merrill Lynch, Bear
>Stearns, Goldman Sachs, Deutsche Bank, Credit Suisse, RBS,
>Countrywide, JP Morgan, and Citigroup are 60 or more days delinquent,
>in foreclosure, or involve homes that have already been repossessed.
>
>The executives and officers of some mortgage finance companies cashed
>out before the market crashed. The poster boy is Angelo Mozilo, the
>CEO of Countrywide Financial, the largest sub-prime lender. He made
>more than $270 million in profits selling stocks and options from 2004
>to the beginning of 2007. And the three founders of New Century
>Financial, the second largest sub-prime lender, together realized $40
>million in stock-sale profits between 2004 and 2006. Paul Krugman
>reported in The New York Times that last year the chief executives of
>Merrill-Lynch and Citigroup were paid $48 million and $25.6 million,
>respectively.
>
>The hardest hit are the innocent borrowers of sub-prime loans. Many of
>them are working- and middle-class families who fell victim to the
>country's economic squeeze, a hardship not of their own doing but a
>symptom of the Bush years. They faced layoffs, stagnant wages, and
>rising costs of home heating, gasoline, utilities, food, and child
>care. For those without health insurance, one serious medical problem
>wiped out their savings. At a time when soaring housing prices were
>out of whack with the rest of the economy, sub-prime loans were the
>only way they could purchase a home. But when they could no longer
>keep up their mortgage payments, they had no safety net. They began
>skipping their monthly mortgage payments, especially after the
>adjustable-rate mortgages kicked in with higher interest rates, as
>high as a 30 percent spike for some borrowers.
>
>Lenders sent letters threatening to take their homes in foreclosure if
>they didn't pay up. But for millions of families, the harsh warnings
>didn't matter. They couldn't refinance out of high-interest adjustable-
>rate mortgages because the value of their home had dropped below the
>outstanding mortgage or because they just didn't have the money. And
>they couldn't tap into a government aid program for at-risk homeowners
>facing foreclosure because none existed.
>
>Those who deserve our greatest sympathy are the victims of predatory
>lending, a segment of the sub-prime market that involves deceptive
>practices by lenders, as well as unconscionable high fees and interest
>rates, sometimes running well over 22 percent. Predatory lenders range
>from sleazy operators in the financial netherworld to mainstream
>financial institutions like Household Finance. These lenders typically
>have salespeople who hound vulnerable families for months, soliciting
>and encouraging them to take out a loan to buy a house or refinance.
>Borrowers are charged hidden high fees, labeled with confusing terms
>like "discount points," suggesting that the fees will lower the
>interest rates, which they don't.
>
>Predatory loans sometimes involve a conspiracy between loan agents and
>unscrupulous home-improvement contractors, as well as appraisers who
>inflate the value of a house so that families will borrow more than
>the houses are really worth. Predatory mortgages often include last-
>minute, hidden second mortgages. Using bait-and-switch tactics,
>predatory lenders tout low interest rates in ads targeting the elderly
>and residents of low-income, working-class, and minority
>neighborhoods, without explaining the actual interest rates or that
>adjustable-rate mortgages mean that the rates will increase.
>
>Borrowers are enticed with deals that require them to pay little or
>nothing down. The unscrupulous lenders approve borrowers for loans
>even if they've recently been bankrupt or don't have sufficient income
>to keep up the payments. These lenders don't document an applicant's
>ability to pay back a loan. They often just accept the borrower's word
>about his income and expenses. "You could be dead and get a loan," a
>mortgage broker told Holden Lewis of Bankrate.com, a leading Web
>source for financial rate information.
>
>Predatory lenders turn lending logic on its head. Instead of
>cautiously making loans to people who can repay them, they get their
>money by lending to people who are unable to repay. The loans are
>structured to guarantee failure. Predatory lenders get borrowers to
>agree to an adjustable-rate mortgage without explaining how it works,
>including the big bump in rates with a few years after taking out the
>loan. Borrowers suckered by predatory lenders often wind up having a
>monthly mortgage payment that is more than half their income. A
>predatory loan is often for more than the value of the house. The
>victims of predatory loans frequently don't realize they've been
>snookered until they're about to lose their homes.
>
>Not all sub-prime borrowers are innocent victims. Some were
>speculators themselves, seeking to profit from the real estate housing
>bubble, and had their eyes wide open. They expected to rent their
>houses or quickly "flip" them to another buyer in a rising housing
>market. Others were simply living dangerously above their means,
>taking on too much debt and occupying houses that, by any reasonable
>standard, they couldn't really afford. These borrowers should live
>with the consequences of their behavior, not be rewarded with any
>help.
>
>Where Do We Go from Here?
>
>What should government do to address this crisis? Public officials
>need to distinguish legitimate sub-prime lenders from the scam artists
>who engage in predatory lending. Likewise, the people facing
>foreclosure need to be treated differently depending on whether they
>failed to exercise personal responsibility or were victims of
>predatory practices. Banks and other lenders and investors who
>speculated in mortgage-backed debt must shoulder some of the blame for
>this debacle.
>
>Government needs to help the victims of predatory lenders who are at
>risk of losing their homes, but it must also adopt preventative
>measures to stop the crisis from getting worse and prevent it from
>happening again. Congress should enact legislation to protect victims
>of predatory loans from foreclosure. The victims should have a right
>to a nonprofit loan counselor or lawyer who can help them renegotiate
>the loan or sue banks, including big Wall Street firms, for violations
>of state and federal consumer protection laws. Indeed, Congress should
>require lenders to restructure predatory loans and provide more
>funding to nonprofit groups that help homeowners renegotiate loans.
>
>One of these groups, ACORN, a national network of community
>organizations, has been pressuring Citigroup to restructure loans
>rather than foreclose on low-income consumers. ACORN wants lenders to
>agree to 30-year, fixed-rate, affordable modifications to existing
>loans so borrowers can avoid interest rate increases that come with
>adjustable-rate mortgages. ACORN has also urged lenders to impose a
>moratorium on foreclosures, which some Democratic candidates have
>supported.
>
>Another group, the National Community Reinvestment Coalition, has a
>foreclosure prevention program that has saved thousands of homeowners
>from losing their homes by pressuring lenders to change adjustable-
>rate mortgages into fixed-rate loans. "This is not a homeowner
>bailout," said John Taylor, group's president. "This is a bailout for
>failed regulatory oversight. Infectious greed and malfeasance by
>lending institutions is the overwhelming culprit, not consumer
>misbehavior."
>
>And UNITE HERE, the garment and hotel workers' union, has launched a
>campaign against Countrywide Financial, the nation's largest sub-prime
>lender, calling on consumers to boycott the bank until it guarantees
>it won't foreclose on borrowers who have fallen behind on adjustable-
>rate loans.
>
>These activist groups have made some headway, but without a federal
>mandate they have to rely on protest and other threats to get banks to
>cooperate. They support a bill sponsored by Rep. Brad Miller, a North
>Carolina Democrat, and Rep. Loretta Sanchez, a California Democrat,
>that would allow bankruptcy judges to amend the terms of home
>mortgages. Under current law, the terms of a mortgage on a yacht or a
>vacation home can be adjusted during bankruptcy, but not primary
>residences. "This makes no sense," said Eric Stein of the Center for
>Responsible Lending, testifying before the House Judiciary
>Subcommittee on Commercial and Administrative Law. Advocates say that
>the Miller-Sanchez bill could help as many as 600,000 homeowners avoid
>foreclosure, but the Mortgage Bankers Association is fighting the
>legislation.
>
>Looking forward, we need the federal government to be a lending-
>industry watchdog, not a lapdog. Step one is to stop predatory
>lending. The Mortgage Reform and Anti-Predatory Lending Act of 2007,
>passed by the U.S. House of Representatives in November, contains some
>useful provisions. It requires lenders to verify all applicants'
>income and document that borrowers have a reasonable ability to pay --
>not just at the initial interest rate, but any future hike in the
>rate. It puts private mortgage companies and mortgage brokers under
>the umbrella of federal lending regulations, requiring them to be
>registered and licensed, just like stockbrokers and insurance brokers.
>It would also allow a borrower to modify an illegal loan, before being
>forced into foreclosure. And it allows states to pursue cases against
>fraud, misrepresentation, false advertising, and civil-rights abuses.
>Under the bill, wronged borrowers could seek some redress from the
>original lender, even if they're not in danger of losing their homes.
>
>But, under pressure from the banking lobby, Congress gutted some of
>the better parts of the bill. The Mortgage Bankers Association and the
>American Banking Association lobbyists persuaded the House to allow
>lenders to continue the insidious practice of paying an increased fee
>to brokers for steering borrowers into higher cost sub-prime
>mortgages. It also bars borrowers whose predatory loans have been sold
>on Wall Street from suing investors for relief until the homeowners
>are facing foreclosure. In effect, it forces borrowers into
>foreclosure as a condition for asserting their rights.
>
>Under the bill, in other words, victims of predatory loans have almost
>no ability to pursue claims against investment banks and other
>investors. Wall Street and the big players in the mortgage market
>won't be held accountable for buying abusive loans. Borrowers who were
>ripped off should be encouraged, not discouraged to sue Wall Street
>firms in state court for relief from mortgages that they never had a
>realistic chance of repaying.
>
>A sweeping bill introduced last week by Sen. Chris Dodd, chairman of
>the Senate Banking Committee, closes many of the loopholes in the
>House bill by adding more consumer protections and industry penalties.
>The Homeownership Preservation and Protection Act of 2007 makes Wall
>Street and other investors liable for illegal practices of mortgage
>brokers and lenders. Unlike current law, which puts the burden on the
>borrower to identify the broker or lender who made the original deal,
>Dodd's bill allows the borrower to sue the current mortgage holder.
>The Dodd bill would prohibit lenders from steering borrowers towards
>more expensive loans than they would otherwise qualify for, and from
>influencing an appraisal's value of a house. It requires that lenders
>confirm that a borrower can afford to pay an adjustable rate mortgage
>after the rate jumps, and that loans provide a "net tangible benefit"
>to the borrower. It also prohibits prepayment penalties on sub-prime
>loans.
>
>But to prevent the current crisis from getting worse -- and to avoid
>future crises -- Congress needs to take much bolder action to rein in
>abusive mortgage lending. Congress should simply outlaw adjustable-
>rate mortgages, which basically ask borrowers to treat their home
>mortgages like stocks, just like Bush wants to turn Social Security
>into individual accounts that people can invest, and risk losing their
>retirement savings.
>
>Congress should also ban private lenders and brokers from issuing sub-
>prime loans of any kind. Instead, the focus should be on strengthening
>nonprofit lending institutions to serve the credit needs of high-risk
>borrowers. Like the old savings-and-loan (S&L) companies, these
>nonprofit lenders are highly regulated and devoted entirely to helping
>people purchase homes with transparent, stable loans.
>
>Nonprofit lenders actually do better than their for-profit
>counterparts. One such lender, Neighborhood Housing Services of
>America (NHS), a federally charted nonprofit group with chapters in
>every American urban area, makes 90 percent of its loans to low and
>moderate income home buyers -- the so-called "risky borrowers" who only
>qualify for sub-prime loans in the private market. About 54 percent of
>NHS' borrowers are minority households. As of June 30, 2007, it has
>made some 3,000 loans totaling $205 million to these borrowers who
>otherwise would have been forced into the private sub-prime market.
>These NHS borrowers don't have the same mortgage problems as sub-prime
>borrowers in private sector. In fact, NHS' delinquency rate is only
>3.34 percent -- well below the national rate of 14.5 percent for sub-
>prime loans in the private sector. The same is true for foreclosures.
>Only one half of one percent of NHS loans went into foreclosure during
>the second quarter of 2007, one fifth the foreclosure rate (2.45
>percent) among private lenders.
>
>NHS succeeds for two reasons. It has an effective mortgage education
>program carried out by its own loan counselors. It requires every
>borrower to participate in its counseling program before and after a
>loan is made. Moreover, and importantly, NHS makes no adjustable
>interest rates loans.
>
>And It All Started with Deregulation
>
>There was a time, not too long ago, when Washington did regulate
>banks. The Depression triggered the creation of government bank
>regulations and agencies, such as the Federal Deposit Insurance
>Corporation, the Federal Home Loan Bank System, Homeowners Loan
>Corporation, Fannie Mae, and the Federal Housing Administration, to
>protect consumers and expand homeownership. After World War II, until
>the late 1970s, the system work. The savings-and-loan industry was
>highly regulated by the federal government, with a mission to take
>people's deposits and then provide loans for the sole purpose of
>helping people buy homes to live in. Washington insured those loans
>through the FDIC, provided mortgage discounts through FHA and the
>Veterans Administration, created a secondary mortgage market to
>guarantee a steady flow of capital, and required S&Ls to make
>predictable 30-year fixed loans. The result was a steady increase in
>homeownership and few foreclosures.
>
>In the 1970s, when community groups discovered that lenders and the
>FHA were engaged in systematic racial discrimination against minority
>consumers and neighborhoods -- a practice called "redlining" -- they
>mobilized and got Congress, led by Wisconsin Senator William Proxmire,
>to adopt the Community Reinvestment Act and the Home Mortgage
>Disclosure Act, which together have significantly reduced racial
>disparities in lending.
>
>But by the early 1980s, the lending industry used its political clout
>to push back against government regulation. In 1980, Congress adopted
>the Depository Institutions Deregulatory and Monetary Control Act,
>which eliminated interest-rate caps and made sub-prime lending more
>feasible for lenders. The S&Ls balked at constraints on their ability
>to compete with conventional banks engaged in commercial lending. They
>got Congress -- Democrats and Republicans alike -- to change the rules,
>allowing S&Ls to begin a decade-long orgy of real estate speculation,
>mismanagement, and fraud. The poster child for this era was Charles
>Keating, who used his political connections and donations to turn a
>small Arizona S&L into a major real estate speculator, snaring five
>Senators (the so-called "Keating Five," including John McCain) into
>his web of corruption.
>
>The deregulation of banking led to merger mania, with banks and S&Ls
>gobbling each other up and making loans to finance shopping malls,
>golf courses, office buildings, and condo projects that had no
>financial logic other than a quick-buck profit. When the dust settled
>in the late 1980s, hundreds of S&Ls and banks had gone under, billions
>of dollars of commercial loans were useless, and the federal
>government was left to bail out the depositors whose money the
>speculators had put at risk.
>The stable neighborhood S&L soon became a thing of the past. Banks,
>insurance companies, credit card firms and other money-lenders were
>now part of a giant "financial services" industry, while Washington
>walked away from its responsibility to protect consumers with rules,
>regulations, and enforcement. Meanwhile, starting with Reagan, the
>federal government slashed funding for low-income housing, and allowed
>the FHA, once a key player helping working-class families purchase a
>home, to drift into irrelevancy.
>
>Into this vacuum stepped banks, mortgage lenders, and scam artists,
>looking for ways to make big profits from consumers desperate for the
>American Dream of homeownership. They invented new "loan products"
>that put borrowers at risk. Thus was born the sub-prime market.
>
>At the heart of the crisis are the conservative free market
>ideologists whose views increasingly influenced American politics
>since the 1980s, and who still dominate the Bush administration. They
>believe that government is always the problem, never the solution, and
>that regulation of private business is always bad. Lenders and brokers
>who fell outside of federal regulations made most of the sub-prime and
>predatory loans.
>
>In 2000, Edward M. Gramlich, a Federal Reserve Board member,
>repeatedly warned about sub-prime mortgages and predatory lending,
>which he said "jeopardize the twin American dreams of owning a home
>and building wealth." He tried to get chairman Alan Greenspan to crack
>down on irrational sub-prime lending by increasing oversight, but his
>warnings fell on deaf ears, including those in Congress.
>
>As Rep. Barney Frank wrote recently in The Boston Globe, the surge of
>sub-prime lending was a sort of "natural experiment" testing the
>theories of those who favor radical deregulation of financial markets.
>And the lessons, Frank said, are clear: "To the extent that the system
>did work, it is because of prudential regulation and oversight. Where
>it was absent, the result was tragedy."
>
>Some political observers believe that the American mood is shifting,
>finally recognizing that the frenzy of deregulation that began in the
>1980s has triggered economic chaos and declining living standards. If
>they needed proof, the foreclosure crisis is exhibit number one.
>
>Those who profited handsomely from the sub-prime market and predatory
>lending, the mortgage bankers and brokers, are working overtime to
>protect their profits by lobbying in state capitals and in Washington,
>DC to keep government off their backs. The banking industry, of
>course, has repeatedly warned that any restrictions on their behavior
>will close needy people out of the home-buying market. Its lobbyists
>insisted that the Bush plan be completely voluntary.
>
>This isn't surprising, considering who was at the negotiating table
>when the Bush administration, led by Treasury Secretary Henry Paulson,
>forged the plan. The key players were the mortgage service companies
>(who collect the homeowner's monthly payments, or foreclose when they
>fall behind) and groups representing investors holding the mortgages,
>dominated by Wall Street banks. The Bush plan reflected both groups'
>calculation that -- for some loans -- they would do better temporarily
>freezing interest rates than foreclosing. Groups who represent
>consumers -- ACORN, the National Community Reinvestment Coalition, the
>Greenlining Institute, Neighborhood Housing Services, and the Center
>for Responsible Lending -- were not invited to the negotiation.
>
>The best hope for real reform rests with a Democratic Party victory in
>November. And after an electoral win, it will require that Democrats
>make sure that these consumer groups are key participants in shaping
>legislation.
>
>And wouldn't it be nice to hear the next president tell the American
>people that, "the era of unregulated so-called free-market banking
>greed and sleaze is over"?
>
>http://www.commondreams.org/archive/2007/12/19/5901/
This is proof that the Bush admin is just trying to enable
large "respectable" corporate interests to do what loan sharks have
been doing for a long time already. This is what happens when the
mafia is in the oval office.
Names" <PopUlist349@hotmail.com> wrote:
>The Conservative Origins of the Sub-Prime Mortgage Crisis
>Everything you ever wanted to know about the mortgage meltdown but
>were afraid to ask.
>
>by John Atlas and Peter Dreier
>Hardly a day goes by without a news story about the accelerating
>number of foreclosures, an economic tsunami that is causing chaos in
>the housing and stock markets, the banking industry, and the global
>money markets, not to mention upending families and neighborhoods.
>Business leaders, activist groups, and Democratic presidential
>candidates are calling for our government to do something before the
>situation declines even further. The problem is worsening in every
>part of the country, but two early primary states -- Florida and Nevada
>-- are among the hardest hit.
>
>The crescendo of criticism recently pushed President George W. Bush to
>announce a plan to freeze interest rates for up to five years for some
>homeowners who purchased homes with high-risk adjustable rate
>mortgages (ARMs) that are scheduled to be "reset" at higher rates, in
>many cases, by hundreds of dollars a month.
>
>The Republican candidates for president generally supported the Bush
>plan but were reluctant to call for further regulations to protect
>borrowers. Some pundits, including former Texas Rep. Dick Armey, a
>right-wing Republican who now runs a conservative think tank,
>FreedomWorks, suggested that the Bush plan violated the president's
>oft-spoken zeal for allowing the "free market" to work. The media fell
>for Bush's media spin, describing it as a interest rate "freeze" and
>an "agreement" hammered out with lenders and investors. But in fact
>the Bush plan involves no mandates or legislation, just a voluntary
>agreement by lenders that lacks the force of law. There's absolutely
>no requirement that would force banks or investors to share the pain
>or be part of the solution. It isn't even clear if investors in
>mortgage-backed securities will allow the lenders to reset the rates.
>They may even file suit to halt the freeze.
>
>Consumer activists, and the Democratic candidates, pointed out that
>the plan excludes most sub-prime borrowers, including those who are in
>the deepest trouble and are delinquent on their mortgage payments and
>facing foreclosure. Of the perhaps 2 million adjustable-rate mortgages
>that are expected to reset through the end of 2009, only 240,000 of
>them -- 12 percent -- would be covered by Bush's proposal, according to
>Barclays Capital, as reported in The New York Times. The Center for
>Responsible Lending, a nonprofit group, estimates that only 145,000
>households will qualify for the rate freeze. Most borrowers will be on
>their own to negotiate with their lenders on a case-by-case basis.
>Many families who persuade banks to temporarily freeze their rates
>still won't be able to afford to make the payments, and will face
>foreclosure.
>
>"It's very disappointing," said Michael Shea, executive director of
>ACORN Housing, a national group that provides homeownership counseling
>for low-income consumers. "Wall Street has made billions and now
>they're hardly paying anything at all" for their role in the sub-prime
>crisis.
>
>Make no mistake -- it is a crisis. Since 1998, more than 7 million
>borrowers bought homes with sub-prime loans. One million of those
>homeowners have already defaulted on their loans The crisis is likely
>to get worse. Financial analysts predict that at least a quarter of
>these people -- over 2 million families -- will default and face the
>financial pain and psychological grief of losing their homes over the
>next few years.
>
>Bush, who once touted his administration's goal as creating an
>"ownership society," may now go down in history as the president on
>whose watch ownership declined. The nation's homeownership rate has
>fallen during the last two years and will plummet further next year.
>Moreover, Bush's unwillingness to take bold steps to regulate lenders,
>brokers, and investors will guarantee that the next president will
>inherit a much bigger mortgage mess.
>
>To many Americans, the crisis seems too complex to comprehend. To
>understand it, we need to know: What is the problem? Who benefited?
>Who got hurt? Who is to blame? Who should we help? What should be
>done? Although the immediate cause is the widespread use of sub-prime
>mortgages, the root cause is a decades old failure of government to
>adequately regulate the banking industry.
>
>What Is Sub-Prime Lending?
>
>Sub-prime lending is a fancy financial term for high-interest loans to
>people who would otherwise be considered too risky for a conventional
>loan. These include middle-class families who have accumulated too
>much debt and low-income working families who want to buy a home in
>the inflated housing market. To cover their risk, lenders charge such
>borrowers higher-than-conventional interest rates. Or they make
>"adjustable rate" loans, which offer low initial interest rates that
>jump sharply after a few years. Only a decade ago, sub-prime loans
>were rare. But starting in the mid-1990s, sub-prime lending began
>surging; these loans comprised 8.6 percent of all mortgages in 2001,
>soaring to 20.1 percent by 2006. Since 2004, more than 90 percent of
>the sub-prime mortgages came with exploding adjustable rates.
>
>With interest rates low, housing prices on a steady rise, and
>practically no government regulation, mortgage finance companies
>devised high-interest, high-fee schemes to entice families to take out
>loans that traditional savings banks would not make. Many of the
>lenders were legitimate operations providing a market for credit-risky
>people. But there also were huge corporations, such as Household
>Finance, that sought extraordinary profits through unsavory means,
>called predatory loans. Not subject to government regulation, they
>bent the rules, lowering normal banking standards.
>
>Mortgage brokers, the street hustlers of the lending world, often used
>mail solicitations and ads that shouted, "Bad Credit? No Problem!"
>"Zero Percent Down Payment!" to find people who were closed out of
>homeownership, or homeowners who could be talked into refinancing.
>They seduced millions of people into signing on the dotted line.
>Although sub-prime lending has been concentrated in minority and low-
>income urban areas, it has spread to the middle-class suburbs.
>
>The sub-prime lenders didn't hold on to these loans. Instead, they
>sold them -- and the risk -- to investment banks and investors who
>considered these high interest rate, sub-prime loans a goldmine. By
>2007, the sub-prime business had become a $1.5 trillion global market
>for investors seeking high returns.
>
>The whole scheme worked as long as borrowers made their monthly
>mortgage payments. When borrowers couldn't or wouldn't keep up the
>payments on these high-interest loans, what looked like a bonanza for
>everyone turned into a national foreclosure crisis and an
>international credit crisis. For millions of families, the American
>Dream of homeownership has become a nightmare.
>
>The mortgage meltdown has serious ripple effects. Foreclosed houses
>become vacant, deteriorate into eyesores, and detract from the
>neatness and feeling of well-being in neighborhoods. Vacant houses
>also attract crime and make it more difficult for neighbors to
>purchase homeowners' insurance.
>
>In neighborhoods with several foreclosed homes, property values, and
>thus local property-tax revenues, plummet, making it harder for cities
>to provide good schools, police protection, and other services.
>According to a new report by the U.S. Conference of Mayors, the weak
>housing market and the large inventory of unsold homes will likely
>reduce home values by $1.2 trillion next year. About half of that
>amount is due to the sharp increase in foreclosures.
>
>Who Benefited and Who Got Hurt?
>
>Mortgage brokers, who occupy an unregulated niche of the lending
>world, made a commission for every borrower they handed over to a
>mortgage lender. These brokers are like the drug dealers on the street
>corner. They are the smallest link in a lending chain that includes
>some of the largest and most respectable Wall Street firms.
>
>Large mortgage finance companies and banks made big bucks on sub-prime
>loans. Last year, 10 lenders -- Countywide, New Century, Option One,
>Fremont, Washington Mutual, First Franklin, RFC, Lehman Brothers, WMC
>Mortgage, and Ameriquest -- accounted for 59 percent of all sub-prime
>loans, totaling $284 billion.
>
>Wall Street investment firms set up special investment units, bought
>the sub-prime mortgages from the lenders, bundled them into "mortgage-
>backed securities," and for a fat fee sold them to wealthy investors
>around the world. According to The New York Times, China's second-
>largest bank, Bank of China Ltd, held almost $9.7 billion of
>securities backed by U.S. sub-prime loans. These investors, who bought
>the collateralized securities, were happy as long as they got paid
>their higher interest on the bonds or other investments.
>
>With the bottom falling out of the sub-prime market, more than 80
>mortgage companies went under in the past six months. Major Wall
>Street firms took billion-dollar losses as the crisis ripped into
>foreign money markets, from London to Shanghai. Lehman Brothers
>underwrote $51.8 billion in securities backed by sub-prime loans in
>2006 alone; as of September, 20 percent of those loans were in
>default, the Times reported. Similarly, about one-fifth of the sub-
>prime loans packaged by Morgan Stanley, Barclays, Merrill Lynch, Bear
>Stearns, Goldman Sachs, Deutsche Bank, Credit Suisse, RBS,
>Countrywide, JP Morgan, and Citigroup are 60 or more days delinquent,
>in foreclosure, or involve homes that have already been repossessed.
>
>The executives and officers of some mortgage finance companies cashed
>out before the market crashed. The poster boy is Angelo Mozilo, the
>CEO of Countrywide Financial, the largest sub-prime lender. He made
>more than $270 million in profits selling stocks and options from 2004
>to the beginning of 2007. And the three founders of New Century
>Financial, the second largest sub-prime lender, together realized $40
>million in stock-sale profits between 2004 and 2006. Paul Krugman
>reported in The New York Times that last year the chief executives of
>Merrill-Lynch and Citigroup were paid $48 million and $25.6 million,
>respectively.
>
>The hardest hit are the innocent borrowers of sub-prime loans. Many of
>them are working- and middle-class families who fell victim to the
>country's economic squeeze, a hardship not of their own doing but a
>symptom of the Bush years. They faced layoffs, stagnant wages, and
>rising costs of home heating, gasoline, utilities, food, and child
>care. For those without health insurance, one serious medical problem
>wiped out their savings. At a time when soaring housing prices were
>out of whack with the rest of the economy, sub-prime loans were the
>only way they could purchase a home. But when they could no longer
>keep up their mortgage payments, they had no safety net. They began
>skipping their monthly mortgage payments, especially after the
>adjustable-rate mortgages kicked in with higher interest rates, as
>high as a 30 percent spike for some borrowers.
>
>Lenders sent letters threatening to take their homes in foreclosure if
>they didn't pay up. But for millions of families, the harsh warnings
>didn't matter. They couldn't refinance out of high-interest adjustable-
>rate mortgages because the value of their home had dropped below the
>outstanding mortgage or because they just didn't have the money. And
>they couldn't tap into a government aid program for at-risk homeowners
>facing foreclosure because none existed.
>
>Those who deserve our greatest sympathy are the victims of predatory
>lending, a segment of the sub-prime market that involves deceptive
>practices by lenders, as well as unconscionable high fees and interest
>rates, sometimes running well over 22 percent. Predatory lenders range
>from sleazy operators in the financial netherworld to mainstream
>financial institutions like Household Finance. These lenders typically
>have salespeople who hound vulnerable families for months, soliciting
>and encouraging them to take out a loan to buy a house or refinance.
>Borrowers are charged hidden high fees, labeled with confusing terms
>like "discount points," suggesting that the fees will lower the
>interest rates, which they don't.
>
>Predatory loans sometimes involve a conspiracy between loan agents and
>unscrupulous home-improvement contractors, as well as appraisers who
>inflate the value of a house so that families will borrow more than
>the houses are really worth. Predatory mortgages often include last-
>minute, hidden second mortgages. Using bait-and-switch tactics,
>predatory lenders tout low interest rates in ads targeting the elderly
>and residents of low-income, working-class, and minority
>neighborhoods, without explaining the actual interest rates or that
>adjustable-rate mortgages mean that the rates will increase.
>
>Borrowers are enticed with deals that require them to pay little or
>nothing down. The unscrupulous lenders approve borrowers for loans
>even if they've recently been bankrupt or don't have sufficient income
>to keep up the payments. These lenders don't document an applicant's
>ability to pay back a loan. They often just accept the borrower's word
>about his income and expenses. "You could be dead and get a loan," a
>mortgage broker told Holden Lewis of Bankrate.com, a leading Web
>source for financial rate information.
>
>Predatory lenders turn lending logic on its head. Instead of
>cautiously making loans to people who can repay them, they get their
>money by lending to people who are unable to repay. The loans are
>structured to guarantee failure. Predatory lenders get borrowers to
>agree to an adjustable-rate mortgage without explaining how it works,
>including the big bump in rates with a few years after taking out the
>loan. Borrowers suckered by predatory lenders often wind up having a
>monthly mortgage payment that is more than half their income. A
>predatory loan is often for more than the value of the house. The
>victims of predatory loans frequently don't realize they've been
>snookered until they're about to lose their homes.
>
>Not all sub-prime borrowers are innocent victims. Some were
>speculators themselves, seeking to profit from the real estate housing
>bubble, and had their eyes wide open. They expected to rent their
>houses or quickly "flip" them to another buyer in a rising housing
>market. Others were simply living dangerously above their means,
>taking on too much debt and occupying houses that, by any reasonable
>standard, they couldn't really afford. These borrowers should live
>with the consequences of their behavior, not be rewarded with any
>help.
>
>Where Do We Go from Here?
>
>What should government do to address this crisis? Public officials
>need to distinguish legitimate sub-prime lenders from the scam artists
>who engage in predatory lending. Likewise, the people facing
>foreclosure need to be treated differently depending on whether they
>failed to exercise personal responsibility or were victims of
>predatory practices. Banks and other lenders and investors who
>speculated in mortgage-backed debt must shoulder some of the blame for
>this debacle.
>
>Government needs to help the victims of predatory lenders who are at
>risk of losing their homes, but it must also adopt preventative
>measures to stop the crisis from getting worse and prevent it from
>happening again. Congress should enact legislation to protect victims
>of predatory loans from foreclosure. The victims should have a right
>to a nonprofit loan counselor or lawyer who can help them renegotiate
>the loan or sue banks, including big Wall Street firms, for violations
>of state and federal consumer protection laws. Indeed, Congress should
>require lenders to restructure predatory loans and provide more
>funding to nonprofit groups that help homeowners renegotiate loans.
>
>One of these groups, ACORN, a national network of community
>organizations, has been pressuring Citigroup to restructure loans
>rather than foreclose on low-income consumers. ACORN wants lenders to
>agree to 30-year, fixed-rate, affordable modifications to existing
>loans so borrowers can avoid interest rate increases that come with
>adjustable-rate mortgages. ACORN has also urged lenders to impose a
>moratorium on foreclosures, which some Democratic candidates have
>supported.
>
>Another group, the National Community Reinvestment Coalition, has a
>foreclosure prevention program that has saved thousands of homeowners
>from losing their homes by pressuring lenders to change adjustable-
>rate mortgages into fixed-rate loans. "This is not a homeowner
>bailout," said John Taylor, group's president. "This is a bailout for
>failed regulatory oversight. Infectious greed and malfeasance by
>lending institutions is the overwhelming culprit, not consumer
>misbehavior."
>
>And UNITE HERE, the garment and hotel workers' union, has launched a
>campaign against Countrywide Financial, the nation's largest sub-prime
>lender, calling on consumers to boycott the bank until it guarantees
>it won't foreclose on borrowers who have fallen behind on adjustable-
>rate loans.
>
>These activist groups have made some headway, but without a federal
>mandate they have to rely on protest and other threats to get banks to
>cooperate. They support a bill sponsored by Rep. Brad Miller, a North
>Carolina Democrat, and Rep. Loretta Sanchez, a California Democrat,
>that would allow bankruptcy judges to amend the terms of home
>mortgages. Under current law, the terms of a mortgage on a yacht or a
>vacation home can be adjusted during bankruptcy, but not primary
>residences. "This makes no sense," said Eric Stein of the Center for
>Responsible Lending, testifying before the House Judiciary
>Subcommittee on Commercial and Administrative Law. Advocates say that
>the Miller-Sanchez bill could help as many as 600,000 homeowners avoid
>foreclosure, but the Mortgage Bankers Association is fighting the
>legislation.
>
>Looking forward, we need the federal government to be a lending-
>industry watchdog, not a lapdog. Step one is to stop predatory
>lending. The Mortgage Reform and Anti-Predatory Lending Act of 2007,
>passed by the U.S. House of Representatives in November, contains some
>useful provisions. It requires lenders to verify all applicants'
>income and document that borrowers have a reasonable ability to pay --
>not just at the initial interest rate, but any future hike in the
>rate. It puts private mortgage companies and mortgage brokers under
>the umbrella of federal lending regulations, requiring them to be
>registered and licensed, just like stockbrokers and insurance brokers.
>It would also allow a borrower to modify an illegal loan, before being
>forced into foreclosure. And it allows states to pursue cases against
>fraud, misrepresentation, false advertising, and civil-rights abuses.
>Under the bill, wronged borrowers could seek some redress from the
>original lender, even if they're not in danger of losing their homes.
>
>But, under pressure from the banking lobby, Congress gutted some of
>the better parts of the bill. The Mortgage Bankers Association and the
>American Banking Association lobbyists persuaded the House to allow
>lenders to continue the insidious practice of paying an increased fee
>to brokers for steering borrowers into higher cost sub-prime
>mortgages. It also bars borrowers whose predatory loans have been sold
>on Wall Street from suing investors for relief until the homeowners
>are facing foreclosure. In effect, it forces borrowers into
>foreclosure as a condition for asserting their rights.
>
>Under the bill, in other words, victims of predatory loans have almost
>no ability to pursue claims against investment banks and other
>investors. Wall Street and the big players in the mortgage market
>won't be held accountable for buying abusive loans. Borrowers who were
>ripped off should be encouraged, not discouraged to sue Wall Street
>firms in state court for relief from mortgages that they never had a
>realistic chance of repaying.
>
>A sweeping bill introduced last week by Sen. Chris Dodd, chairman of
>the Senate Banking Committee, closes many of the loopholes in the
>House bill by adding more consumer protections and industry penalties.
>The Homeownership Preservation and Protection Act of 2007 makes Wall
>Street and other investors liable for illegal practices of mortgage
>brokers and lenders. Unlike current law, which puts the burden on the
>borrower to identify the broker or lender who made the original deal,
>Dodd's bill allows the borrower to sue the current mortgage holder.
>The Dodd bill would prohibit lenders from steering borrowers towards
>more expensive loans than they would otherwise qualify for, and from
>influencing an appraisal's value of a house. It requires that lenders
>confirm that a borrower can afford to pay an adjustable rate mortgage
>after the rate jumps, and that loans provide a "net tangible benefit"
>to the borrower. It also prohibits prepayment penalties on sub-prime
>loans.
>
>But to prevent the current crisis from getting worse -- and to avoid
>future crises -- Congress needs to take much bolder action to rein in
>abusive mortgage lending. Congress should simply outlaw adjustable-
>rate mortgages, which basically ask borrowers to treat their home
>mortgages like stocks, just like Bush wants to turn Social Security
>into individual accounts that people can invest, and risk losing their
>retirement savings.
>
>Congress should also ban private lenders and brokers from issuing sub-
>prime loans of any kind. Instead, the focus should be on strengthening
>nonprofit lending institutions to serve the credit needs of high-risk
>borrowers. Like the old savings-and-loan (S&L) companies, these
>nonprofit lenders are highly regulated and devoted entirely to helping
>people purchase homes with transparent, stable loans.
>
>Nonprofit lenders actually do better than their for-profit
>counterparts. One such lender, Neighborhood Housing Services of
>America (NHS), a federally charted nonprofit group with chapters in
>every American urban area, makes 90 percent of its loans to low and
>moderate income home buyers -- the so-called "risky borrowers" who only
>qualify for sub-prime loans in the private market. About 54 percent of
>NHS' borrowers are minority households. As of June 30, 2007, it has
>made some 3,000 loans totaling $205 million to these borrowers who
>otherwise would have been forced into the private sub-prime market.
>These NHS borrowers don't have the same mortgage problems as sub-prime
>borrowers in private sector. In fact, NHS' delinquency rate is only
>3.34 percent -- well below the national rate of 14.5 percent for sub-
>prime loans in the private sector. The same is true for foreclosures.
>Only one half of one percent of NHS loans went into foreclosure during
>the second quarter of 2007, one fifth the foreclosure rate (2.45
>percent) among private lenders.
>
>NHS succeeds for two reasons. It has an effective mortgage education
>program carried out by its own loan counselors. It requires every
>borrower to participate in its counseling program before and after a
>loan is made. Moreover, and importantly, NHS makes no adjustable
>interest rates loans.
>
>And It All Started with Deregulation
>
>There was a time, not too long ago, when Washington did regulate
>banks. The Depression triggered the creation of government bank
>regulations and agencies, such as the Federal Deposit Insurance
>Corporation, the Federal Home Loan Bank System, Homeowners Loan
>Corporation, Fannie Mae, and the Federal Housing Administration, to
>protect consumers and expand homeownership. After World War II, until
>the late 1970s, the system work. The savings-and-loan industry was
>highly regulated by the federal government, with a mission to take
>people's deposits and then provide loans for the sole purpose of
>helping people buy homes to live in. Washington insured those loans
>through the FDIC, provided mortgage discounts through FHA and the
>Veterans Administration, created a secondary mortgage market to
>guarantee a steady flow of capital, and required S&Ls to make
>predictable 30-year fixed loans. The result was a steady increase in
>homeownership and few foreclosures.
>
>In the 1970s, when community groups discovered that lenders and the
>FHA were engaged in systematic racial discrimination against minority
>consumers and neighborhoods -- a practice called "redlining" -- they
>mobilized and got Congress, led by Wisconsin Senator William Proxmire,
>to adopt the Community Reinvestment Act and the Home Mortgage
>Disclosure Act, which together have significantly reduced racial
>disparities in lending.
>
>But by the early 1980s, the lending industry used its political clout
>to push back against government regulation. In 1980, Congress adopted
>the Depository Institutions Deregulatory and Monetary Control Act,
>which eliminated interest-rate caps and made sub-prime lending more
>feasible for lenders. The S&Ls balked at constraints on their ability
>to compete with conventional banks engaged in commercial lending. They
>got Congress -- Democrats and Republicans alike -- to change the rules,
>allowing S&Ls to begin a decade-long orgy of real estate speculation,
>mismanagement, and fraud. The poster child for this era was Charles
>Keating, who used his political connections and donations to turn a
>small Arizona S&L into a major real estate speculator, snaring five
>Senators (the so-called "Keating Five," including John McCain) into
>his web of corruption.
>
>The deregulation of banking led to merger mania, with banks and S&Ls
>gobbling each other up and making loans to finance shopping malls,
>golf courses, office buildings, and condo projects that had no
>financial logic other than a quick-buck profit. When the dust settled
>in the late 1980s, hundreds of S&Ls and banks had gone under, billions
>of dollars of commercial loans were useless, and the federal
>government was left to bail out the depositors whose money the
>speculators had put at risk.
>The stable neighborhood S&L soon became a thing of the past. Banks,
>insurance companies, credit card firms and other money-lenders were
>now part of a giant "financial services" industry, while Washington
>walked away from its responsibility to protect consumers with rules,
>regulations, and enforcement. Meanwhile, starting with Reagan, the
>federal government slashed funding for low-income housing, and allowed
>the FHA, once a key player helping working-class families purchase a
>home, to drift into irrelevancy.
>
>Into this vacuum stepped banks, mortgage lenders, and scam artists,
>looking for ways to make big profits from consumers desperate for the
>American Dream of homeownership. They invented new "loan products"
>that put borrowers at risk. Thus was born the sub-prime market.
>
>At the heart of the crisis are the conservative free market
>ideologists whose views increasingly influenced American politics
>since the 1980s, and who still dominate the Bush administration. They
>believe that government is always the problem, never the solution, and
>that regulation of private business is always bad. Lenders and brokers
>who fell outside of federal regulations made most of the sub-prime and
>predatory loans.
>
>In 2000, Edward M. Gramlich, a Federal Reserve Board member,
>repeatedly warned about sub-prime mortgages and predatory lending,
>which he said "jeopardize the twin American dreams of owning a home
>and building wealth." He tried to get chairman Alan Greenspan to crack
>down on irrational sub-prime lending by increasing oversight, but his
>warnings fell on deaf ears, including those in Congress.
>
>As Rep. Barney Frank wrote recently in The Boston Globe, the surge of
>sub-prime lending was a sort of "natural experiment" testing the
>theories of those who favor radical deregulation of financial markets.
>And the lessons, Frank said, are clear: "To the extent that the system
>did work, it is because of prudential regulation and oversight. Where
>it was absent, the result was tragedy."
>
>Some political observers believe that the American mood is shifting,
>finally recognizing that the frenzy of deregulation that began in the
>1980s has triggered economic chaos and declining living standards. If
>they needed proof, the foreclosure crisis is exhibit number one.
>
>Those who profited handsomely from the sub-prime market and predatory
>lending, the mortgage bankers and brokers, are working overtime to
>protect their profits by lobbying in state capitals and in Washington,
>DC to keep government off their backs. The banking industry, of
>course, has repeatedly warned that any restrictions on their behavior
>will close needy people out of the home-buying market. Its lobbyists
>insisted that the Bush plan be completely voluntary.
>
>This isn't surprising, considering who was at the negotiating table
>when the Bush administration, led by Treasury Secretary Henry Paulson,
>forged the plan. The key players were the mortgage service companies
>(who collect the homeowner's monthly payments, or foreclose when they
>fall behind) and groups representing investors holding the mortgages,
>dominated by Wall Street banks. The Bush plan reflected both groups'
>calculation that -- for some loans -- they would do better temporarily
>freezing interest rates than foreclosing. Groups who represent
>consumers -- ACORN, the National Community Reinvestment Coalition, the
>Greenlining Institute, Neighborhood Housing Services, and the Center
>for Responsible Lending -- were not invited to the negotiation.
>
>The best hope for real reform rests with a Democratic Party victory in
>November. And after an electoral win, it will require that Democrats
>make sure that these consumer groups are key participants in shaping
>legislation.
>
>And wouldn't it be nice to hear the next president tell the American
>people that, "the era of unregulated so-called free-market banking
>greed and sleaze is over"?
>
>http://www.commondreams.org/archive/2007/12/19/5901/
This is proof that the Bush admin is just trying to enable
large "respectable" corporate interests to do what loan sharks have
been doing for a long time already. This is what happens when the
mafia is in the oval office.
