Posts Tagged ‘Mortgage’

Financial Industry Has Not Learned From 2008

I purchased my current home in 2008, several months prior to the housing bubble bursting.  At the time, I had steady employment, had no credit issues and had no expectation that I would run into any situation where I would have issues with my purchase.  However, I found it weird that throughout the purchase process I was never asked to provide any definitive proof of my income.  I was asked what my income was and I replied truthfully to the question.  But at no time was I asked to provide copies of my W-2, copies of my bank statements, pay stubs, etc.  In a previous home purchase in 1998 I was asked for all of those, so as I said I found it quite weird.  In any event, my closing came and went and I’ve been happily living in my home with my family ever since.

The house bubble burst in late 2008, in large part leading to a commanding win by Barrack Obama.  There was much demagoguing, grand standing, finger pointing, back peddling, evasion, and a host of regulations and laws to address the many issues that lead to it.  However, one thing does not seem to have changed.  Something that was key to the bubble in the first place.  I recently refinanced my home and I did so without having to provide proof of my income.  Again.

Yes, I have very good credit.  No, I’ve never missed a mortgage payment.  My home is not encumbered by liens or secondary mortgages.  I have a good income to debt ratio, and I’m steadily employed.  But despite all that I find it outrageous that banks – MAJOR BANKS – are still not requiring borrowers to prove their income through W-2’s, pay stubs, and bank statements.  I mentioned several times during the Refi process that I have proof of my income and was ready to submit it and was told it wasn’t necessary.

That is, in part, what lead to the bubble in the first place.  Borrowers borrowing for homes they couldn’t truly afford, using gimmicks and ARMs to do so and without having to actually prove they could afford their perspective home.  When push came to shove and interest rates began to increase those risky borrowers were very quickly pushed out of their homes when they couldn’t afford their adjustable mortgages.  And we, the responsible tax payers were left with the bill.

How long again will it be before we’re right back where we found ourselves four years ago in order to acquiesce to Democrat demands that everyone afford a home?

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Fannie, Freddie and Democrat responsibility

First just let me say that as far as the Recession goes, there’s plenty of responsibility to go around.  There is plenty of evidence that shows a lot of financial institutions left their fiscal conservativeness at a party somewhere and never went back to pick it up.  But anyone that seriously took any of the crap the Democrats were saying during the 2008 campaign as truthful is a moonbat.  The crux of the economic meltdown was, and remains, Fannie Mae and Freddie Mac.  They own ~70% of the entire mortgage market in the United States and as such their regulations have the effect of law to the rest of the industry.  And their regulations, thanks to the Community Reinvestment Act mandated ever progressive and ever lower standards.  The standards became wide-spread in the market and most of the history is well explained here but focus on this quote as a start:

The CRA was not a static piece of legislation. It evolved over the years from a relatively hands-off law focused on process into one that focused on outcomes. Regulators, beginning in the mid-nineties, began to hold banks accountable in serious ways. Banks responded to this new accountability by increasing the CRA loans they made, a move that entailed relaxing their lending standards.
It’s the change in intent that gradually looked toward equality of outcome rather than equality of opportunity that matters so much and doesn’t that sound a bit familiar in other debates (hint ‘Social Justice’)?  Once the standards were lowered to the point where anyone could get a mortgage, regardless of their ability to pay, and institutions chased profits down avenues that were better left un-tread, we had everything that was required for a full-fledged financial melt-down that we’ll be living through for years to come.
But of course the Democrats in the 2008 campaign were quick to deflect any blame to President Bush, even though President Bush had tried in 2004 and 2005 to make much-needed changes to Freddie Mae and Freddie Mac that the Democrats blocked.  I wish we had seen this during the campaign.

We have been concerned that the Administration’s legislative proposal regarding the GSEs would weaken affordable housing performance by the GSEs, by emphasizing only safety and soundness. While the GSEs’ affordable housing mission is not in any way incompatible with their safety and soundness, an exclusive focus on safety and soundness is likely to come, in practice, at the expense of affordable housing.

Read the letter in its entirety and then look at who signed it.  At the very time when President Bush was trying to rein in Freddie and Fannie, the Democrats were pushing for him to further loosen lending standards.  They neglected to mention any of this in their 2008 campaigns.  Luckily we’ve had people like Michelle Malkin around to help us stay on top of what was really going onToday however the Democrats are singing a slightly different tune, but don’t let that fool you.  I suggest that in 55 days we not forget what we’ve read today.

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