Posts tagged with: mortgage

The mortgage fraudsters are back, but this time they’re preying on people struggling to keep their homes out of foreclosure.  In her commentary, Kelsey VanOverloop looks at how the “Foreclosure Rescue” come-on works and what homeowners can do to avoid the serious consequences of dealing with an unethical lender.  VanOverloop describes the fraudulent schemes:

Today’s mortgage fraudster preys on the vulnerable, those who have run out of options and are desperate for help. They seek out people known to have fallen on hard times, pressuring them into making snap decisions about things they know little about. Unlike those schemes we saw during the peak of the housing market, which capitalized on the dream of owning a home, the fraud of today takes advantage of the fear of foreclosure. These practices bolster the stereotype of the predatory lender, except now the predators are the ones ostensibly offering assistance, tempting ignorant homeowners into what appears to be an easy solution to their tough problems. All this further erodes trust in the housing market which, in the long term, undermines the stability of lenders and homeowners alike.

VanOverloop asserts the mortgage fraud will only slow the recovery from the housing crisis.  Furthermore, the moral underpinnings of mortgage fraud and how it affects all of us are explained:

Mortgage fraud is taking money out of a market working to rebuild itself, and these schemes, along with the intervention it will take to end them, will only slow recovery. They also further deteriorate trust in the housing market, where this quality is critical. We need to trust our builders to build safe homes, trust our realtors to price homes fairly, and trust our lenders to have in mind the best interests of the people who comprise their market. When this trust is damaged, it is more difficult to stem falling home values and housing recessions. Unethical mortgage operations, like all selfish and shortsighted economic activities, do not only harm the immediate victims; they hurt all of us.

Blog author: jwitt
posted by on Wednesday, October 8, 2008

What is the root cause of the sub-prime crisis shaking the global economy? We need to know so we don’t allow it to screw up our economy even worse.

Many point to dishonesty and poor judgment on Wall Street. There was plenty of that leading up to the near-trillion dollar bailout, and even now the stock market is busily disciplining stupid, dishonest companies.

Others point to the many people who falsified loan applications to get mortgages beyond their means. That too played a role.

But dishonesty and poor judgment are as old as Adam and Eve. Something more was at work in the present crisis, a crisis of unprecedented scope. Why didn’t profit-minded loan companies run thorough credit checks? Why did they keep pumping out low interest loans to high risk borrowers, ignoring the risks?

It’s as if somebody spiked the financial system’s punch bowl with stupid juice, driving normally prudent financiers to dash, en masse, over the cliff.

It seems that way because it is that way. The brewers of the stupid juice were largely (if not exclusively) politicians in Washington who sought to redistribute wealth from the rich and middle class to poor people with bad credit. These politicians fostered various laws and institutions that directed, cajoled and legally bullied mortgage companies to extend big loans to people with little credit.

A case in point is a group called ACORN—Association of Community Organizations for Reform Now. Stanley Kurtz explains in an Oct. 7 essay at National Review Online:

“You’ve got only a couple thousand bucks in the bank. Your job pays you dog-food wages. Your credit history has been bent, stapled, and mutilated. You declared bankruptcy in 1989. Don’t despair: You can still buy a house.” So began an April 1995 article in the Chicago Sun-Times that went on to direct prospective home-buyers fitting this profile to a group of far-left “community organizers” called ACORN, for assistance. In retrospect, of course, encouraging customers like this to buy homes seems little short of madness.

… At the time, however, that 1995 Chicago newspaper article represented something of a triumph for Barack Obama. That same year, as a director at Chicago’s Woods Fund, Obama was successfully pushing for a major expansion of assistance to ACORN, and sending still more money ACORN’s way from his post as board chair of the Chicago Annenberg Challenge. Through both funding and personal-leadership training, Obama supported ACORN. And ACORN, far more than we’ve recognized up to now, had a major role in precipitating the subprime crisis.

(more…)

Blog author: jballor
posted by on Wednesday, October 1, 2008

Dave Ramsey’s got a three step plan to “change the nation’s future.” He’s calling it “The Common Sense Fix” (PDF). Here’s Dave’s prediction:

Whichever presidential candidate or political party that champions this plan from their leadership down will likely become the next president. That is because this plan fixes the crisis while going along with the wishes of the vast majority of Americans.

Check out the plan and share what you think about the nation’s economic future.

Blog author: jballor
posted by on Monday, September 29, 2008

Last week an email newsletter from Sojourners featured a quote from U2 rock star and activist Bono (courtesy the American Prospect blog):

It’s extraordinary to me that the United States can find $700 billion to save Wall Street and the entire G8 can’t find $25 billion dollars to saved 25,000 children who die every day from preventable diseases.

The quote is pretty striking given the current shape of the debate over the Wall Street bailout. Bono’s insight is instructive: Once the government takes upon itself tasks that fall outside its regular purview, how do we rightly adjudicate between all the different needy causes? It simply becomes a game of which special interest can hire the most lobbyists.

Indeed, the $25 billion that Bono points out would be necessary to save 25,000 children a day is the same amount that the US government just paid to bailout the domestic auto industry over the weekend.

If the feds are willing to dole out $600-700 billion in corporate welfare for Wall Street, it only seems right that poor families and individuals get their own relative share of government redistribution.

The size of the government bailout relative to the critical debate about the execution of these policies is positively shameful compared to the fiscal cost of the war in Iraq (roughly $560 billion on the upper end) and the critical attention that the war has and continues to receive. Of course dollars aren’t the only costs we’ve incurred in the Iraq war, but they are one salient measure.

On the one hand conservatives often point out that government involvement in provision of welfare should be sharply curtailed or eliminated because it isn’t primarily the government’s task to directly offer assistance to the poor. Rather, that’s the job of institutions of civil society, like church ministries, non-profit charities, and groups promoting individual giving. So it seems inconsistent to claim this and at the same time assert that it is the government’s responsibility to bailout overextended (and therefore irresponsible) corporations with taxpayer money.

UPDATE: A HuffPost blogger takes this logic to its political terminus (emphasis original):

The Democrats, if they truly constituted an opposition party, which they prove every day they do not, could demand that if monies are going to go to bail out Wall Street, at least an equal amount would go to bail out average Americans in the way of health care, full funding for social security and medicare, mortgage and rent protection, infrastructure repair, decent public transportation, investment in green jobs and technology, etc.

One great virtue of the market is that over time it tends to punish bad players. Those who engage in unsustainable business practices will eventually get what’s coming to them. Debt catches up with you and you go bankrupt (unless in an election year cowardly politicians aren’t willing to let companies pay the due penalty for their error).

There’s been some talk about the moral hazards associated with the bailout. One moral hazard is that bad business practices aren’t going to be appropriately punished, and so such short-sighted and unsustainable behavior will be incentivized by reduction or elimination of risk. There’s now going to be an implicit government guarantee of corporations that are “too big” or too important to fail. The cost of this bailout may be $700 billion, but it sets a precedent for future bailouts whose costs are inestimable.

But enough hasn’t been said on another moral hazard that has to do with the good players, people who didn’t take out gimmicky mortgages to finance half-million dollar homes or rush into home ownership when they should have been renting. That’s the flip-side of bailing out bad players…good players get punished and are less likely to continue responsible behavior. And in the face of a government and businesses that are telling us to spend all we can, why should we be financially responsible?

Blog author: jballor
posted by on Wednesday, September 24, 2008

I don’t think government ownership is what President Bush had in mind when he talked about his vision for an “ownership society,” which had ostensibly included a plank focused on “expanding homeownership.” But it looks like that’s where we’re headed in an era of government takeovers and bailouts.

For some background on how we go to this place, check out this 1999 piece from the New York Times (HT): “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.”

All this seems like case of good intentions (increasing private ownership, extending capital access to the poor and oppressed) executed by means of bad policy (lowering credit standards for loans, bailing out failed corporations) resulting in negative (albeit unintended) consequences (foreclosures and bankruptcies).

Oh, and are you one of the people who didn’t borrow beyond your means? Guess what? You got pwned. As one blogger wonders, “Am I just a sucker or something to play by the rules? Are all of us who paid taxes suckers?” Think of that as the “pwnership” society.

Blog author: jcouretas
posted by on Thursday, May 15, 2008

Congress is debating a number of measures designed to “rescue” homeowners facing foreclosure as the housing and credit crisis grinds more and more financial and real estate assets to dust. Much of the reporting on the credit crisis, in the tradition of objective journalism, strains to explain the problem objectively, as if what was happening in the markets was somehow an act of nature, something unguided by human action. Thus, people “fell” into the problem as if pulled by a gravitational force:

Congress has been struggling for months to respond to a mortgage crisis that has left more than 1.2 million homes in foreclosure, with an additional 3 million forecast to join them over the next two years. Most involve subprime loans that established terms the borrowers could not afford. As homeowners defaulted and fell into foreclosure, home prices fell more than 10 percent. Many borrowers who are having trouble making payments find that they cannot sell or refinance their homes because they owe their banks more than their homes are worth.

But markets and industries and trade are guided by human beings, who have fairly well known tendencies. In “The Human Foundation of Financial Risk,” Alex J. Pollack of the American Enterprise Institute looks at that depressingly predictable mass hysteria that has propelled one financial bubble after another from the South Sea Bubble of 1720 and beyond. The “great twenty-first century housing and mortage bubble,” he argues, is just the most recent example.

Pollack notes how the mortgage securities market, looking out on a housing expansion that seemed unending, became “enamored” of statistical models of risk crafted by some of the best and brightest on Wall Street. How well did these arcane formulas come to grips with the human factor?, Pollack asks.

Did they pick up the effects of short memories–of the inclination to convince ourselves that we are experiencing “innovation” and “creativity” when all that is happening is a lowering of credit standards by new names–or of what are rightly considered unearned risk premiums being counted as profits and paid out as bonuses? Did the models adequately take into account the cumulative human forces of optimism, gullibility, short-term focus, genuine belief in momentum, extrapolation of so-far-profitable speculations, group psychology, and increasing fraud? Did the models keep up with the fact that as they were running, the behavior was changing? Obviously, they did not.

He reminds us that the reason financial bubbles are so seductive is that, for awhile at least, everyone associated does pretty well. Homeowners were getting more and more house with easier borrowing terms, lenders were generating profits from ever more creative strategies, and Wall Street was packaging and reselling this stuff to investors all over the world. All the while, Congress and the White House were crowing about ever higher levels of home ownership and participation in the American Dream.

Pollack points to the “widespread realization” in early 2007 that a large proportion of subprime mortages and subprime mortgage securities were going to default as the beginning of the end. It was the disillusion that crashed the party. “The end of belief ends the bubble and begins the bust,” Pollack writes. Let the panic begin.

We’re now in the early phase in what is likely to be a massive push in Washington to bring new regulation to the financial services industry and “rescue” more homeowners in an election year (but probably not the homeowners who have been paying their bills). Pollack again sees how this typically plays out:

In the wake of a bust, there is always a predictable series of political activities: first, the search for the guilty; second, the fall of previously esteemed heroes; and third, legislation and increased regulation to ensure that “this will never happen again.” But, with time, it always does happen again. Consider in this context the statement of the comptroller of the currency in 1914 that with the creation of the Federal Reserve, “financial and commercial crises, or panics . . . seem to be mathematically impossible.”

Pollack talks about the “cumulative human forces” behind the bust. From a Christian perspective, these “cumulative” factors would also include a healthy awareness of the reality of sin. There will always be the risk of cheating and greed and theft in financial affairs, personal and corporate. When that risk is inflated with the bubble, then its effects, as we have seen, may be impossible to contain. And no group caught up in the enthusiasm of the housing and mortgage bubble was immune from it — not the homeowner, not the lender, not the securities market.

The new risk we face is that the regulatory cure proposed by Washington will have it’s own illusions of “innovation” and “creativity” — with a naive belief in the power of government to make any more financial crises “impossible.” Federal bailouts for both bankers and borrowers are on the table. Over-reaction and over-regulation is likely to follow. There will be no discussions about the nature of sin in Congressional hearings, but there will be plenty of demons. Mostly, mortgage lenders. As Pollack observes, it’s all too predictable.

Blog author: rnothstine
posted by on Monday, September 17, 2007

In college I wrote a paper for a Latin American Politics class titled, Barnum & Bailey Circus bailouts. The paper took the position that another financial bailout of Mexico would be a huge mistake and would not be money well spent. The paper was probably a little flippant because I interwove within the framework of the paper some characters with top hats, traveling bands of political circuses, and other outlandish theatrical symbolism. I was trying to make light of what I thought was a circus-like proposal, as well as rely on smoke and mirrors to downplay my lack of reading for the course.

There is nothing funny, however, about mortgage bailout proposals. Hillsdale professor Gary Wolfram has an excellent article in Human Events, titled “Econ 101: The Problem with Bailouts.” Wolfram shows how markets correct themselves, and even discusses the upsides to a now more affordable market:

As Sherlock Holmes told Dr. Watson in “Scandal in Bohemia,” one problem is that we see but do not observe. For every homeowner who loses his home and moves into a smaller home or a rental, there is another homeowner who moves into that home and out of a smaller home or rental.

It would be interesting if the media began doing stories on how much more affordable it is for people to move from rented apartments into owner-occupied homes. The house that used to cost $280,000 and was out of the reach of the young family is now $220,000 and becomes affordable.

If the federal government, including the Federal Reserve, bails out the mortgage industry in some fashion, the market will quickly learn that taxpayers will bear some of the risk of the investments of homeowners, lenders, hedge funds and other market participants. This will result in their taking more risk than is economically justified, encouraging the very activity that led to the situation of declining housing prices and foreclosures in the first place.

But if politicians keep rattling off vague proposals of bailout proposals in the belief it will raise their polls, they may have to think again. In an Associated Press article, J.W. Elphinstone, cites a newly popular online petition, Tax Payers Against a Wall Street and Mortgage Bailout. Furthermore, Peter Viles in the Los Angeles Times, references a Fox News Poll that shows 70% of the public against a taxpayer bailout.

Many of those people have been priced out of the market and understandably they don’t want to support people who cannot afford their homes, many of whom made really bad financial choices. The people against this bailout simply want back in the market, and they understand now the market is correcting itself.

Blog author: jspalink
posted by on Wednesday, September 20, 2006

Mortgage foreclosure rates soared 53 percent in August, compared with a year earlier, and many people who were eager to buy a house with low “teaser” interest rates and creative financing are in trouble. Acton Senior Fellow in Economics Jennifer Roback Morse expects new calls for goverment oversight of the mortgage industry, which is already highly regulated. A better idea, she suggests, would be for buyers to examine their motives for acquiring real estate with gimmicky loans and take some responsibility for their actions.

Read the full commentary here.