The mortgage crisis....Did the Bush Administration protect the Dirt Balls?

This editorial by Elliot Spitzer, current Governor of New York, but former state attorney general was fascinating; http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

Its Title and Subtitle->Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers

The editorial describes how Spitzer's office while state attorney general and those of other states tried to protect consumers against predatory bank lending but the Bush Administration actively stopped it. In fact 50 States Attorney's and 50 State Banking Commissioners were thwarted in trying to regulate predatory mortgage lending by the actions of the Bush administration. In one case the Office of the Controller of the Currency sued to stop one investigation from the state level.

It intrigued me so I did a bit of searching and found a couple of articles from the past that speaks to these issues: From 2006-> http://www.mtgfoundation.com/2006/11/spitzer-breaks-up-new-york-mortgage-fraud-ring.html. The states were going after fraudulent mortgage lenders; the type that led to this big mortgage crisis.

And an article from 2004 http://query.nytimes.com/gst/fullpa...93AA15751C0A9629C8B63&sec=&spon=&pagewanted=1 that describes events in 2003 and 2004 wherein a financial institution escaped scrutiny from state oversight and was able to cozy up to uninterested yawning sleepy fed regulators . and ultimately collapsed leaving investors high and dry.

Looks like George Bush and his buds were really paying attention to the economy, the welfare of folks and the care of the population. I mean big businesses.

And so we have this enormous growing financial crisis....and possibly there were protections in place that might have stemmed it and the Bush boys decided to protect the banks and undo the protections.

He is one helluva of a national economic wizard. Trust every word he says. He is looking out for your best interests

 

Elliot Spitzer is an idiot

That's not predatory Lending, its reckless lending.

Its called ARM mortgages, they've been around for years,

No That is incorrect, the looming national crisis is because of an oversupply of houses, mortgage loan values worth more then homes are worth and the lack of lending by banks which is causing the crisis.

 

You have to put the blame on the people buying the houses and accepting the loans.

With all this mess new Condos are still going up and people are paying 300k for a 500 sq ft condo. What is their excuse?

 

Exactly it's the people who were making 30k a year then trying to buy their own McMansion

 

There's some people that already flipped a few house and made big money.

They are stuck with the last one and want a bailout.

 

I spread the blame around. The the builders who build bigger and bigger houses, the people who bought bigger than they should have, the mortgage companies who encouraged them, the real estate sales people with dollar signs in their eyes, the regulators who don't care, the whole bunch, from top to bottom. I recall over the last few years seeing BIG houses being built everywhere, and wondering where the money was coming from.

My niece came over for a visit a couple of years ago, looked around and asked me, "Why don't you move?" No doubt she was thinking I could afford BIGGER AND BETTER, assuming of course that BIGGER AND BETTER is always better.

 

I was flipping through channels the other night and saw on CNBC that some couple was $2 mln in debt because of trying to buy houses and flip them, and another was $1 mln in debt because of the same thing.

It's craziness.

 

You want a good laugh. This was pretty big until he shut down his blog http://iamfacingforeclosure.com/history.html

This guy Casey Serin was a self-described "24-year-old would-be real estate mogul." and took out millions of dollars in loans. Most of the homes went into default. The flippers drove the prices through the roof.

http://www.caseypedia.com/wiki/Casey_Serin

 

Step out of the articles and/or editorial and start looking at the cases that were tried by various state offices against lenders. In many consumer protection cases there is a strong case of evidence. But you gotta look at the cases.

In contracts between individuals and bigger companies it is helpful to establish some protections for a variety of practical reasons.

Ever read a long complex commercial contract of any sort. Btw, I have read thousands, working as a commercial real estate broker.

The contract is typically (or always) written with extraordinary protections written in on behalf of whomever originates the contract. To protect oneself one needs either competent legal assistance, and/or the leverage to change clauses to protect oneself. Even in contracts between businesses where they may be a presumption of more capability of obtaining more protections than the ordinary citizen contracts can be extraordinarily complex. In fact, newer contracts can strain the capabilities of the most experienced attorneys. I recall a case where as brokers and publishers on an arcane issue we subconsulted on behalf of expert witnesses to a complex case wherein a large sophisticated financial institution signed a long term ground lease for land, wherein one single clause written in a way that verbally (in writing) ever so slightly changed a version of more common language. The net financial result impacted the escalation part of this contract so that some years down the costs/annual rental of this ground lease for maybe about an acre of land were going to be greater than the gross gdp output of the US.

Of course the ground owner claimed the bank was sophisticated enough and sharp enough in negotiating the contract that the case should be dropped.

The financial scenario was so outrageous the bank (ground tenant) won the case.

And that was a case where it was a sophisticated business customer, not the more unsophisticated consumer.

Read the cases and see if it makes sense to protect the consumer.

The other part of the equation, as written in the Spitzer editorial and the article about the Washington State institution is that the Feds, under Bush, stepped in and stripped the states of regulatory rights.

The Feds could have respected States Rights, they could have backed off. Instead, they stepped in on behalf of financial institutions and placed them in a protected environment; one in which the feds weren't doing any type of oversight.

Two conclusions.
1. The Bush administration decided to favor banks over people.
2. We have a horrendous financial crisis.

 

I'm thinking that the adminstration was trying to put people into homes and subprime borrowers that back their homes back in 2001 did well.

2003 and onwards and was bubble all the way. There was certainly a lot of greed involved by all parties.

Casey Serin is a good case in point. His blog was pretty funny until he shut it down and sold it to get out of Dodge.

 

One of the biggest problems is the 2/28 ARM. I don't understand why the borrower didn't understand it was an ARM. I think most of the borrowers didn't give an F* They saw the prices going up and rushed in before they went up anymore.

 

Its not that people didn't understand it was an arm, there intention was to either refinance the arm later with another arm or sell the house and walk away with a 40% profit. Except that buyers stopped buying houses, and the mortgage bond market dried up.

 

Fed should have saw something comming, but didn't react

 

The Fed is not in the business of busting bubbles.

 

This relates to the 2/28 arm.

I don't know the specifics of arms. I'm very adverse to stuff that has variable rate terms. Obviously they can be risky. In typical investment terms, the strategies that soniqhost describe are actually used frequently. It looks like individual investors came into the came too late, the bubble burst and they are facing a market that is crashing rather than going endlessly up.

A neat strategy to protect against rising interest rates on variable rate loans is to get an upper level cap. Sometimes you can get it by just negotiating, sometimes you buy it. In any case it is a sort of insurance against variable rates going through the roof.

All in all I still think the Bush administration abandoned consumers to protect banks. It wasn't even basic laissez faire...."let the businesses do business". They stepped in and blocked state regulations. That is a very active interferance on behalf of big business.

This interferance and this business is so removed from any kind of political rhetoric about supporting businesses and growing the economy.

This entire industry was and is fee-based. Lots of brokers making the loans got paid based on production. They would have been making the money regardless of where they were working. The businesses are not factories that generate still more jobs, etc.

When a market is hot...they are all making money. When a market cools....the individuals quit or are fired or laid off. Its not one of these industries that grow the economy.

The economic argument about growth and non-government interferance just has no bearing whatsover.

This was a case where the Bush administration played favorites with an industry that supported the administration and its party. Pure politics.

Really crappy government....its turned out to be destructive to the nation and many of its population.

 

A lot of the arms were set up with teaser rates or as interest only loans. The buyer got his house and the broker got his commison.

Your're right that a lot of buyers didn't know what they were getting into but a lot of buyers were trying to get into a house to flip it. Now they are crying for Federal disaster relief at the taxpayers expense.

 

Half of the homes in las Vegas are vacant, not people being foreclosed on but no one living there, that shows you how much of the much of the homes built went to speculators who hoped to flip the house.

 

The same thing is true for Arizona and California as well as in new condo developments.

 

I don't feel sorry for the investors. I've been on the plus and minus side of that.

If and/when they stop paying on the mortgages ....that is when the crisis takes bigger hits.

Man oh man......Its actually a good time to be a bank/lender "workout" specialist. That job function has got a lot of growth potential for the next few years.