Overstepping their authority, again

Congress pressured lenders to give out loans to damn near anybody (low down/no down/bad credit okay) After all, we should all be homeowners. Just because the guy across the street works 12 hours a day doesn't make him special.
 
I don't see the connection.
I saw mortgage notes being bought up by secondary companies which prompted banks to give out even more loans. The banks were making a bundle by selling the notes and the secondary companies were making a bundle off the increased value of the properties.
All of which artificially drove up the price of homes. That in turn caused a glut of new homes on the market to the point where supply outpaced demand and the bottom fell out.
I see a lot of short sighted short term investment/greed involved but I don't see any involvement by congress.
 
When the government sponsors guarantees to lenders, the lender has less inclination to carefully check each applicant. After all, it's not thier money on the line. Handing out $350,000 mortgages, followed by lines of credit to the baker & his wife the tavern maid, isn't exactly responsible lending practices.

Government intereference in the private sector creates trouble every time it's tried.
 
http://news.bbc.co.uk/2/hi/americas/7626613.stm

It is believed the intention is to find a way of bringing all the bad debts into one organisation whose task will be to hold them on behalf of the taxpayer until they can be sold off at some point in the distant future, says the BBC's Justin Webb in Washington.
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In the meantime, he said that the government would be stepping up action to increase the availability of capital for new home loans.
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:wstupid:*{sarcasm}Why not ,it worked the first time.{/sarcasm}
 
Gato_Solo said:
F.D.I.C. ;)

BTW...I think the government should let them go TU. This would've never happened had the banking regulations not been changed a few years back...
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That would be the repeal of the Glass-Steagall Act of 1933 by William Jefferson Clinton on Novermer 12, 1999.

Letting them go TU is a sure fire path to a complete monetary collapse of the United Stateeconomy and currency. Do you really want that?
 
Professur said:
Anyone looked into investing in Rhodesia recently?
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No, but I am communicating with one of those guys from Nigeria who has several million dollars that was hidden away by his father before the government collapse; and he is willing to split it with me if I help him get it out of the country. All I had to do was give him my SSN, bank account number, and mother's maiden name so he can transfer the funds into my account. I can hardly wait.
 
Dave said:
huh?
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It was government regulations forcing lenders to make loans to those who were unlikely to be able to pay off the loans that caused this mess. Remember the word "redlining" that was bandied about about a decade ago? "Redlining" was the practice of refusing loans to people within certain boundaries where the defaul rate was high, income was low, and, since many of these areas were depressed areas, the govermnment called this "racism". To get rid of the "problem", which turned out not to be one in the first place, the government forced lenders to make loans to people in these areas. This is where the sub-prime market and 100% loans came from.

See THIS

John R. Lott Jr.: Financial Markets Are in a Mess
Monday, March 17, 2008

Financial markets are in a mess.

Securities giant Bear Stearns, saddled with sub-prime loan debt teetered on the verge of collapse last week. The drumbeat in the media and among Democrats is that we are supposedly either in or near a recession. Even the positive news is reported with claims that it is an aberration.

Politicians always seem to know better. Not satisfied with telling people what types of light bulbs to use and the size of cars they can drive, politicians in Washington have decided to replace financial markets and try legislating away the laws of supply and demand.

Last week congressional democrats introduced regulations to stop what they complained were "wild interest rate hikes" on credit cards. Before that Hillary Clinton advocated a 90-day moratorium on foreclosures and a five-year freeze on interest rates for sub-prime mortgages.

Yet, price controls don’t solve the problems with high interest rates. If people want to borrow more money than is available, interest rates rise, both to attract more to lend and insure that those who need what scarce money there is, are the ones who get to borrow it. If regulations prevent interest rates from going up, you get shortages and credit rationing.

The current mortgage crisis arose because loans were made with virtually nonexistent underwriting standards. There was no verification of income or assets, little assurance of the ability to pay the mortgage, and little or no down payment. So, with rules like these, who wouldn’t have expected defaults? In January, the Federal Reserve stepped in proposing strict regulations on what conditions should be met before loans would be allowed.

Democrats criticized the rules as not going far enough in determining when loans could be made.

But if lending money to people with so little credit worthiness were so obviously such a boneheaded mistake that even non-bankers see it, why would people who had billions of dollars at stake and years of experience lend out money this way?

To critics the answer seems simple: Greed.

Yet, no matter how greedy you are, would you think that loaning money to people who are likely to default with little collateral in their property was the way to riches? Would you lend your money out that way?

Obviously, no.

So, why did they make the loans? Government regulation.

Some of the very people who are now advocating new regulations were the same ones that forced through the regulations over a decade ago that caused the problems that we are facing today.

This all started back in 1992, when a Boston Federal Reserve study claimed to find evidence of racial discrimination. The Fed later used the study to produce a manual for mortgage lenders that: “discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower–income minority applicants.”

So what is on the list of Fed’s “outdated criteria”? Such “discriminatory” factors as the borrower’s credit history, income verification, and the size of the mortgage payment relative to income.

But it turns out that the original study was mistaken.

Economists discovered that there were errors in the data the study used. Some minorities were listed as having wealth up to hundreds of times greater than they actually had, making it look like wealthy minorities were being turned down for loans. When the data errors were corrected minorities with the same financial background as whites had been at no disadvantage in getting mortgages.

There was an expected consequence of these easier loans: minorities were hit by higher foreclosure rates. Ironically, people who point to these higher rates as evidence of discrimination don’t understand that the regulations setup to make it possible to get loans without the qualifications also meant that they are more likely to default.

Indeed, two academics, Professors Ted Day and Stan Liebowitz at the University of Texas at Dallas, who criticized the Fed policy back in 1998, warned : “After the warm and fuzzy glow of ‘flexible underwriting standards’ has worn off, we may discover that they are nothing more than standards that lead to bad loans … these policies will have done a disservice to their putative beneficiaries if … they are dispossessed from their homes.”

Nor is this the first time that the government has created these problems. Most economists believe that the Savings and Loan collapse in the 1980s was due to federal deposit insurance. The government charged all banks the same rate for insurance, no matter how risky their investments.

Banks that made riskier investments didn't pay a higher insurance premiums and could afford to offer higher interest rates than their competitors and attract depositors. But while these banks grew, they were also more likely to go bankrupt. It was akin to government flood insurance that encouraged people to keep on rebuilding their houses next to rivers that flood.

The “new” solutions such as a moratorium on foreclosures will have just as certain consequences. They will make lending money riskier, scaring away those willing to lend money, and raising mortgage rates.

One might hope that the mess that politicians have already made of the financial system would give them some humility. Yet, the pattern is all too familiar. Government regulations generate problems that lead to calls for even more regulation. Will politicians get the blame that they deserve for the financial mess that they created?

*John Lott is the author of "Freedomnomics" and a senior research scientist at the University of Maryland. Lott recently consulted with the Independence Institute on changes in D.C. crime rates.
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Dave said:
I don't see the connection.
I saw mortgage notes being bought up by secondary companies which prompted banks to give out even more loans. The banks were making a bundle by selling the notes and the secondary companies were making a bundle off the increased value of the properties.
All of which artificially drove up the price of homes. That in turn caused a glut of new homes on the market to the point where supply outpaced demand and the bottom fell out.
I see a lot of short sighted short term investment/greed involved but I don't see any involvement by congress.
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When these loans defaulted they sold them to Fannie and Freddie. Fannie and Freddie became a dumping ground for bad paper. The likes of Franklin Raines, Jamie Gorelick, Jim Johnson, et al raped F&F and made millions, and sometimes hundreds of millions, at the same time.

Guess who is now working for Obama? Franklin Raines and Jim Johnson.

See HERE and HERE for more on this.
 
http://www.washingtonpost.com/wp-dyn/articles/A32845-2005Apr6.html

False Signatures Aided Fannie Mae Bonuses, Falcon Says

By Kathleen Day and Terence O'Hara
Washington Post Staff Writers
Thursday, April 7, 2005; Page E01

Fannie Mae employees falsified signatures on accounting transactions that helped the company meet earnings targets for 1998, a "manipulation" that triggered multimillion-dollar bonuses for top executives, a federal regulator said yesterday.

Armando Falcon Jr., director of the Office of Federal Housing Enterprise Oversight, said the entries were related to the movement of $200 million in expenses from 1998 to later periods. The result of the changes was an increase in Fannie Mae's 1998 earnings per share and the release of a $27.1 million bonus pool for senior executives.

Fannie Mae reported paying the following executive bonuses in 1998: chairman and chief executive James A. Johnson received $1.932 million; Franklin D. Raines, chairman-designate, received $1.11 million; Chief Operating Officer Lawrence M. Small received $1.108 million; Vice Chairman Jamie S. Gorelick received $779,625; Chief Financial Officer J. Timothy Howard received $493,750; and Robert J. Levin, an executive vice president, received $493,750.

Raines and Howard were ousted by the Fannie Mae board in December after the chief accountant of the Securities and Exchange Commission agreed with OFHEO's criticism of the company's accounting, including the 1998 bonus maneuver. He directed the company to correct financial statements, a move that could wipe out $9 billion in reported profit dating to 2001.

Falcon, during congressional testimony and in comments afterward, publicly drew a link for the first time between the falsified signatures, which his agency disclosed last month, and the accounting manipulations that led to bonuses, which OFHEO disclosed in the fall. A Fannie Mae employee has told investigators that financial records from 1999 to 2002 bore his name and signature but were not prepared by him, Falcon testified.

"We have identified several problems involving procedures for preparing, reviewing, authorizing and recording" Fannie Mae's accounting, Falcon said. His office has said it is sharing all information from its probe with the Securities and Exchange Commission and the Department of Justice.

Falcon said OFHEO has ordered Fannie Mae to determine whose signatures were falsified, why, and whether any executives who received bonuses as a result of the transactions knew about them or the circumstances leading up to them. He would not disclose the names of the employees interviewed, the names used in the falsified signatures or who might have signed the names.

"We're looking into who did it and how far up it went," Falcon said. He made his comments during and following a hearing by a House Financial Services subcommittee, as Congress prepares to consider legislation that would create a new regulator for Fannie Mae and its smaller rival, Freddie Mac.

A spokesman for Fannie Mae, Charles V. Greener, said the company had no comment. Lawyers for Raines and Howard did not return telephone calls seeking comment on whether they knew about the falsified signatures or other problems Falcon cited. Small declined to comment. Gorelick did not return a phone message. The company would not make Levin, who still works there, available.

Falcon said his office obtained testimony from an employee in Fannie Mae's controller's division indicating the employee would change the books when asked, even though he often did not understand the purpose of the changes. OFHEO is investigating the extent and circumstances of those changes, Falcon said.

In his testimony, Falcon also criticized the company's policy of holding mortgage-backed securities for a month before deciding whether to sell them or hold them in the company's own investment portfolio.

"This practice appears to stand in stark contrast to the company's denials of engaging in 'cherry picking' when the matter was reviewed by a 2003 Task Force on Mortgage-Backed Securities Disclosure," Falcon told lawmakers. The task force included officials from OFHEO, the SEC and the Treasury Department.

Fannie Mae's Greener declined to comment on the issue, though the company has denied using its vast nonpublic information base about the home loans it buys to determine which mortgages or mortgage-backed securities to keep or sell. Critics have said use of such inside information is unfair to the broader market Fannie Mae resells to because the company obtains the information through its quasi-government status.

The OFHEO probe began last year following a similar investigation into accounting mistakes at McLean-based Freddie Mac, a scandal that led to the ouster of several top executives there, including two chief executives.

The accounting scandals are being used by Rep. Richard H. Baker (R-La.), chairman of the subcommittee that held the hearing, and the Bush administration to move forward on legislation that would increase oversight and curb the growth of Fannie Mae and Freddie Mac. Baker and others have tried for years to pass such legislation, only to find it defeated by the lobbying efforts of the two companies.

The companies' accounting scandals have bolstered the position of critics, such as Federal Reserve Board Chairman Alan Greenspan. He told the Senate Banking Committee yesterday that the companies' federal subsidies may not benefit homeowners and that the firms' large size and dominance of housing markets could pose a threat to the nation's financial system if they ever fell into trouble.

While there is a general consensus in Congress that Fannie Mae and Freddie Mac need a new, stronger regulator, Greenspan's testimony focused largely on the most controversial aspect of the debate: the size of the companies' portfolios of mortgage assets. Together, the mortgages and mortgage-backed securities that Fannie Mae and Freddie Mac own total $1.5 trillion, a more than tenfold increase in the past 15 years.

The Fed chairman called on Congress to sharply reduce the two companies' massive mortgage portfolios "while we can," saying that without a reduction, they will "inevitably" have major financial problems, causing a crisis in the economy.

Fannie Mae, Freddie Mac and housing industry advocates say the two companies' growing size has strengthened their financial health and improved their flexibility for providing a stable and affordable flow of cash to the home mortgage market -- their congressionally chartered mission.

But Greenspan said the only reason he could find for the vast increase in the companies' balance sheets is to allow Fannie Mae and Freddie Mac to make more money for their shareholders. The companies, , because of their implicit government backing -- what he repeatedly called a "subsidy" -- are able to borrow money at below-market rates and invest the money in market-rate investments. This "spread" between their borrowing costs and what they make on mortgage investments creates a "profit motive" that is at odds with their public mission to provide affordable mortgages and, further, concentrates mortgage investment market risks in two large companies, he said.

Baker's bill calls for giving a new regulator authority to restrict the size of either Fannie Mae or Freddie Mac if the size of the portfolio poses a safety and soundness risk, but it does not call for specific limits or decreases in their balance sheets.
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And then there's this. So the ones who created the problem are now the ones in charge of "fixing" it; and the same names just keep coming up.

http://www.portfolio.com/news-markets/top-5/2008/06/12/Countrywide-Loan-Scandal

Countrywide's Many 'Friends'
by Daniel Golden Jun 12 2008
Senators Dodd and Conrad are among the government officials who scored V.I.P. loans from C.E.O. Angelo Mozilo. An exclusive Portfolio investigation.

Two U.S. senators, two former Cabinet members, and a former ambassador to the United Nations received loans from Countrywide Financial through a little-known program that waived points, lender fees, and company borrowing rules for prominent people.

Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.

Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke. Jackson was deputy H.U.D. secretary in the Bush administration when he received the loans in 2003. Shalala, who received two loans in 2002, had by then left the Clinton administration for her current position as president of the University of Miami. She is scheduled to receive a Presidential Medal of Freedom on June 19.

Holbrooke, whose stint as U.N. ambassador ended in 2001, was also working in the private sector when he and his family received V.I.P. loans. He was an adviser to Hillary Clinton’s presidential campaign.

James Johnson, who had been advising presidential candidate Barack Obama on the selection of a running mate, resigned from the Obama campaign Wednesday after the Wall Street Journal reported that he received Countrywide loans at below-market rates.

Most of the officials belonged to a group of V.I.P. loan recipients known in company documents and emails as “F.O.A.'s”—Friends of Angelo, a reference to Countrywide chief executive Angelo Mozilo. While the V.I.P. program also serviced friends and contacts of other Countrywide executives, the F.O.A.’s made up the biggest subset.

[more ... much, much more]
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jimpeel said:
Letting them go TU is a sure fire path to a complete monetary collapse of the United Stateeconomy and currency. Do you really want that?
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I disagree. Adding a trillion dollars to our ever ballooning budget, however, may be. Allowing organizations that are so closely tied to the government to collapse will affect our credit rating, I'm sure. However, it'll not set precedence that fascism (state owned business is communism & the state now owns these businesses) is the answer.

Lehman Bros was a publically held company. The stock holders got screwed.
AIG was a publically held company. The stockholders got screwed.
Fannie & Freddie...same.

No matter what we learned in the 90's, playing with stocks can get you burned. That's why they aren't supposed to be protected (see FDIC) It's a gamble to play the market.

Make money & capitalism kicks ass.
Lose money & socialism kicks ass. :bs:
 
jimpeel said:
You mean the one that tried to change the regulations of Freddie and Fannie five years ago and was shot down by the Democrats? Ya mean that one?
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This goes beyond partisan bickering.

5 years ago, the Republicans held it all. They thought they were Democrats & that the Post Office was open for business.

Simply, everybody in Washington failed us. They are failing us still.

Time for a 100% change in our Executive & Legislative branches.
 
Yep, we've only got 2 senators, and a handful of reps in the house,
and the pres surely isn't doing what I voted for.*piss2*:disgust:
 
The Treasury Department's first draft said that only mortgage-related assets would be purchased. But in a later version, Treasury Secretary Henry Paulson asked for the power to expand purchases to troubled assets beyond real estate.

That could conceivably leave taxpayers picking up the tab on things like bad car loans and credit card debt.
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http://www.cbc.ca/world/story/2008/09/23/bailout-push.html

Previously the Government said that they would make money from holding onto bailed out Mortgages and selling them at a later date for a possible profit,how the hell are they going to make money on buying bad car loans and CC debt. :rolleyes:
 
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