Ok, so the Feds have announced they will be taking over lending giants Freddie Mac and Fannie Mae. The two institutional lenders either hold or back half of the outstanding mortgages in the US.
Lets tell the truth about the sudden and dramatic worsening of the mortgage markets. The foreclosure rate has nearly doubled since the end of March. There are those facing foreclosure due to the slowing economy, but that number of individuals has remained consistent over the months and matches past historical numbers. The “recent financial results and trouble in the mortgage market has shifted to homeowners who took out exotic loans with little or no proof of their income and assets”. http://www.washtimes.com/news/2008/sep/05/fannie-mae/. Half of Freddie & Fannie’s losses come from sour Liar Loans. http://www.freep.com/apps/pbcs.dll/article?AID=2008809070341
The Obama/Biden ticket are trying to make political hay – claiming the that the culprit for the current surge in foreclosures is the economy – when in fact the blame should be laid squarely on “egregious lending practices and rampant speculation by home builders and small investors alike”. http://seattlepi.nwsource.com/business/1310ap_home_foreclosures.html. For those of us who don’t use “egregious” in everyday speech, Webster’s says it means: conspicuously offensive <flagrant errors>; especially : so obviously inconsistent with what is right or proper as to appear to be a flouting of law or morality <flagrant violations of human rights>.
The Mortgage Industry nicknamed these “egregious” loans “NINJA or LIAR LOANS”.
The Detroit Free Press, known to be a liberal publication, defined “NINJA LOANS” as loans where little or no effort was made to verify a borrowers income or assets. The FREEP pointed out that NINJA stood for NO INCOME, NO JOB, NO ASSETS. http://www.freep.com/apps/pbcs.dll/article?AID=2008809070341
NPR, long noted for its liberal bias, referred to “Liar Loans” as, ” where the lender makes no effort to verify the income reported by the person receiving the loan”. http://www.npr.org/templates/story/story.php?storyId=8972571
Details of the Feds intervention, which could cost taxpayers billions, are not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron. Losses on liar loans could total $100 billion, according to Moody’s Economy.com
Why did the Mortgage Industry recklessly pursue the use of “Liar or Ninja Loans”? The answer to that question is simple – PROFITS.
“The loans were also immensely profitable for the mortgage industry because they carried higher fees and interest rates. A broker who signed up a borrower for a liar loan could reap as much as $15,000 in fees for a $300,000 loan. Traditional lending is far less lucrative, netting brokers around $2,000 to $4,000 in fees for a fixed-rate loan”. http://www.freep.com/apps/pbcs.dll/article?AID=2008809070341
In some area the problem has been worsened by Internet or Ebay Home sales. The Associated Press reports that one County in Ohio had, “been hit particularly hard by the nation’s foreclosure crisis…. more entrepreneurs are buying vacant houses from banks and government agencies and selling them on eBay, often to buyers who have never been to Cleveland.” http://www.wdtn.com/Global/story.asp?S=8963167 “The flipping often happens so fast that officials at Cleveland’s overburdened building and housing department have a hard time keeping up”.
Details of the Fannie & Freddie intervention, which could cost taxpayers 100’s of billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron. http://www.washtimes.com/news/2008/sep/05/fannie-mae/
The departure of these CEOs is not enough. Liar and Ninja Loans should be prohibited by Congress.
If the Democrats want to effect real change – they need to start telling the real truth. The Freddie/Fannie bailout is directly due to the fact that the institutions embraced reckless lending practices. If the true problem isn’t recognized, it can’t be fixed.
McCauleysweblog: The following Articles describe the role of “political ideology” in the Financial Crisis – How Politics fueled the crisis:
Professor Stan Liebowitz: The Real Scandal – http://www.nypost.com/seven/02052008/postopinion/opedcolumnists/the_real_scandal_243911.htm?page=0
Professor Thomas J DiLorenzo: The CRA Scam and its Defenders: http://www.mises.org/story/2963
John R Lott, Jr : Analysis – Reckless Mortgages Brought Financial Market To Its Knees http://www.foxnews.com/story/0,2933,424945,00.html
THE BLOOD LETTING CONTINUES
Washington Mutual replaces CEO Kerry Killinger
BY SARA LEPRO, AP Business Writer 2 hours, 58 minutes ago
NEW YORK –., ravaged by losses from sour mortgages, replaced as chief executive of the nation’s largest savings and loan on Monday, adding him to the growing list of banking bosses ousted by their boards. Its shares sank almost 22 percent.
Battered by rising mortgage delinquencies and defaults, and by the sinking value of its mortgage portfolio, WaMu has lost nearly 70 percent of its market value this year.
Killinger, who was stripped of his chairman title in June, became CEO of the Seattle-based thrift in 1990 and built WaMu into one of the country’s largest banks with a heavy focus on the types of mortgages at the heart of the housing bust.
The company expects losses in its residential mortgage portfolio to total $19 milion. http://news.yahoo.com/s/ap/20080908/ap_on_bi_ge/washington_mutual_ceo
Filed under: Barack Obama, Fannie Mae, Freddie Mac, Joe Biden, John McCain, Mortgage Crisis, Politics, Sara Palin Tagged: | Barack Obama, Fannie Mae, Freddie Mac, Joe Biden, John McCain, Mortgage Crisis, Sarah Palin