Sunday, June 21, 2009
Are Obama's Mortgage Regulations Naive or Scapegoating?
The Mortgage origination business model has been the same since I started in the mortgage business in the late 80's. Brokers sell what is created by the GSE's or the secondary market, plain and simple!
For decades mortgage retailers had many reduced down payment mortgages such as VA, FHA and many CRA programs. These loans were very well performing loans, including the ones with the DAP's.
Why did mortgages get so bad starting in the early 2000's? Massive greed, The Fed, The SEC, HUD, Fannie Mae and Freddie Mac. Throw Barney Frank in there too!
Greed: Bankers, Wall Street, Mortgage Brokers and dare I say it-Borrowers turned their sensibilities off and acted like pigs at the easy money mortgage feeding trough. The only borrowers we should feel sorry for are those that are still paying their mortgages on-time, where is their bailout?
The FED: The Fed's easy money policy allowed new channels of mortgage funds to be created through the use of PLS's - private lable securitizations. These were the subprime and other exotic products that are driving foreclosures. The Fed handed the bankers a diet rich in super cheap money ( Washington Mutual is a prime example )
The SEC: The regulatory agency that arguably allowed the most global damage. This dead and rotten giant missed oversight of Credit Default Swaps which were the true cause of the global financial crisis. Also, don't forget a single man (Madoff) completely fooled an entire government agency. Welcome to regulation and regulators.
HUD: HUD locked out many mortgage brokers from originating FHA loans, hence forcing the secondary markets to create "FHA look alike programs". HUD also continues to mandate horribly lengthy and difficult to understand disclosures and forms for borrowers.
Fannie Mae and Freddie Mac: Seeing early in the decade that they were missing huge profits from the exotic loans, and being led by executives such as Franklin Raines ( paid 70 million in 5 years ), the business model went from asset stewardship to executive bonuses. The fat twosome of Fannie and Freddie cannonballed into non-conforming (exotic) loan pools soaking everyone in the global financial system.
Barney Frank: Representative Frank had an intimate secual relationship with Herb Moses a Fannie Mae executive. Mr. Frank literally had intimate knowledge of the internal workings of Fannie Mae and even with that knowledge stated to the public that Fannie Mae was solvent in July of 2008 two months before the company started to implode. Many investors continued to buy stock in Fannie Mae.
The governments actions or lack of appropriate action has had toxic results. Maybe they should look inward first?
