Mac-Coleman

3 September 2011 –

Let me get this straight. When Democrats controlled Congress in the last years of the Bush administration, Committee Chairmen like Barney Frank (D) MA, put pressure on banks to make it easier for people to get mortgage loans to buy houses. Credit ratings were ignored, fact checking procedures were relaxed to absurdity, and 0% down, adjustable rate mortgages (ARMS), interest only payments for the first two years, all sorts of gimmicks were implemented. Anybody who wanted to could get a mortgage and get into a home. In 2006 and 2007, I remember both Nancy Pelosi (D), CA, and Barney Frank extolling the probability and the virtues of every American who wants to being able to buy a home. The American dream brought to you by the Democratic Party in Congress.

Successful bankers don’t like to do fiscally stupid things. Either figures and actuarial tables make fiscal sense or they don’t. Offering home ownership to just about anybody with a hint of a job or an income is, by any green-eye shaded accountant’s assessment, a fiscally stupid thing. But wait, the more loans bankers offer, the more money they potentially can make. Bankers indeed like to make money. Sure, but it is a fool’s bet to not fight the implementation of fiscally irresponsible practices that will assuredly lead to huge numbers of defaults on loans and little faith in the remaining paper? Agreed…yet, can bankers follow the dicta born of Congress’s political pandering and still protect themselves, yeah, even make money? Those in the business, from Jimmie Stewart in It’s a Wonderful Life to Shylock in The Merchant of Venice are not stupid people.

A simple solution, a cleverly evil solution was already in front of the bankers. Bundle the suspect mortgages into securities products and sell them back to the same government that impelled the banks into this circus to begin with. Then, the banks will be out of the bad mortgage business and will have made a bunch of money to boot. Fannie Mae and Freddie Mac, people who are in bed, literally, with the lawmakers who thought up this foolish project, will have to pay for their boss’s foolishness.

Well, we all know what happened. The housing market collapsed in late 2008. People, who by the fiscally prudent standards of yore should have never tried to buy a house, didn’t make their mortgage payments. What a surprise! Foreclosures skyrocketed. The paper products, long since out of the banks’ coffers and into the government’s files became worthless securities. Hungry chickens came home to roost.

Not so fast. When it comes to money, nothing is ever over. The government is suing 17 banks to recover the money Fannie Mae and Freddie Mac gave to them for these worthless mortgage backed securities.

According to the Associated Press, in the lawsuits filed in New York and federal courts, the government piously (my word, not the AP’s) laments that the securities contained registration and prospectus statements “contained materially false or misleading statements and omissions.” The agencies also said that the banks and lenders falsely stated that the mortgages represented in the securities did not comply with underwriting guidelines and standards and “significantly overstated the ability of the borrower to repay their mortgage loans.” In the words of any eighth grader: “like, duh!” Since then, both Nancy Pelosi and Barney Frank have been reelected.

The lawsuit will proceed, I am sure. Let me see…who the bad guys are in this farce? I list them in descending order of culpability. 1) Politically driven politicians who implement just about any fiscally insane policy to get votes and to represent themselves as the guardians of the average American. When things collapse, then blame others for the failure of their policies. 2) Bankers who lament the fiscally irresponsible guidelines pressured upon them, but, nonetheless, who figure out how survive and prosper under the new rules by kicking the toxic can down the road to the next address. 3) Fannie Mae and Freddie Mac, who bumble along as government bureaucracies and who only talk responsibly when lawsuits are filed. 4) The people who knew that they really couldn’t afford to buy a house. But, succumbing to the government’s and the banks’ marvelously displayed advertisement enticements, paid nothing down on an ARM with interest-only payment for the first six months and got into an over-valued house. After six months, they defaulted when they found they couldn’t make their payments. Off with their heads! All of them!

As an aside. We bought our first home after 36 years of marriage in Nov 2010. We put 20% down and had an income that was as secure as just about any on earth. But, because of the backlash of the housing market collapse, the time and effort it took for us to be approved for a loan was almost more painful than it was worth to be in a house of our own. As it so often is the case, we paid for others’ follies. Those with houses worth less than the mortgages, but who faithfully pay their monthly bills and hope for the market to recover, will continue to pay for quite some time.