ED:
I'm confused. Can you point me toward the legislation that forces banks to make sub prime loans ........ AL
You are "confused": I guess we agree on something. But, No. I'm not going to bring you up to speed on something that can be Googled. The acronym for the law starts with "C" and it is well-known in the context of the pre-existing prudent-lender procedure of not lending in bad neighborhoods--Google "red lining."
Banks were under the gun of the regulators and trial attorneys to extend credit where they would otherwise not lend money. BHO was part of a lawsuit that resulted in with a settlement by, as I recall, Citi Bank. If you are genuinely interested it's easy to find.
I personally am astounded by what has transpired in the credit markets since I checked out on April 30, 1981 and went sailing. I audited banks as a CPA, and represented the mortgage division of a syndicate of banks as an attorney. None of this sub-prime stuff was even thought of back then. My only banking experience since then is at my local state bank, population 550, where they make loans in the old fashioned way. They do package loans, as is common, and lay them off at Fannie Mae, so they can keep making loans, but regular banks are not at the root of the sub-prime melt down. The "banks" you hear about are "investment banks," not local banks where you walk in and sit with a VP to ask for a loan.
There is a good blurb on the Yahoo home page quoting Greenspan on this very topic. He was amazed at what slipped in the crack during his watch. What I am waiting for are the indictments, starting with the home buyer who inflated his or her or their income, and it's no defense to say that some shylock mortgage broker said it was OK. A person I knew in the late 1970s went to the federal pen for misstating financial statements to secure federally insured farm loans. And if mortgage brokers were part of the perjury, there is conspiracy, and if mortgage packaging investment bankers failed to preform due diligence, then off with their heads, and so forth, right to the top.
Part of the problem is the "pile on" agenda of the drive by media. The sky is falling based on manufactured negative reporting. Witness the couple os poster people for everyone's worst nightmare: Their story as constructed by the
New York Times follows:
Twiddle Dee and Twiddle Dum are pictured long faced in front of their California dream home. They say that they paid $225,000 in 2001 and added $75,000 "improvements" with a second mortgage in 2004. Now their best offer will leave only $220,000 to pay down the $300,000 they still owe. Whoa! They paid nothing down, added a 40-foot ham radio tower and swimming pool, and after 7 years have reduced zero principal. Reading the lying news story closer we find that the $220,000 is mortgage pay down, not the offer, which would include 7% brokerage fees, closing costs, lawyer and title fees, and buyer concessions to settle contingencies (like remove the damn eyesore tower).
Actually the true story is that these people bought a house they couldn't afford with no money down (no equity), have lived there for 7 years, and they splurged on a 40-foot tower that the neighbors hate, and the buyer, odds on, has no use for. It is a fact of life that adding a swimming pool adds zero value. Add sales-associated costs to the $220,000 they say is left over for the bank and the buyer's offer is somewhere between $240,000 and $250,000. The problem here is stupid people, doing stupid things with other people's money. The parting shot of the
NYT article was Mrs. Twiddle Dee's lament that "I think the bank bears responsibility."
Well, it remains to be seen if anyone is held to task, or whether our next president simply declares this whole thing to be nationalized guilt, like nationalizing the financial sector, send out another economic stimulus check, and we'll let the government fix things. After all, only the government can print $700,000,000 of crisp new money to spread around. No wonder people are buying expensive shotguns. EDM
