By Mike Whitney
Another Giveaway to the Banksters
Obama, Housing and the Next Big Heist
February 15, 2013 "Information Clearing House" For those who missed President Obama’s latest giveaway to the Bank Mafia, we’ll repeat what he said here. This is an excerpt from Tuesday’s State of the Union Speech:
First of all, whenever you hear a politician talk about “streamlining the process”, run for cover. The term is a right-wing formulation that means “remove all the rules which inhibit profitmaking”. Naturally, Wall Street’s favorite son, President Hopium, is more than comfortable with the expression and uses it to great effect. But what are the rules that Obama wants to eliminate, that’s the question?
Obama answers that himself when he says: “Too many families with solid credit who want to buy a home are being rejected.”
This is pure baloney. Borrowers with good credit who can meet the standard down payment requirement (usually 10 percent) can secure financing without too much trouble. The problem is that the banks don’t want to be limited to creditworthy applicants alone, because there aren’t enough creditworthy applicants interested in buying a house. That’s why they want Obama to loosen regulations on “government insured” mortgages so they can lend money to anyone they want knowing that Uncle Sam will pay the bill when the loans go belly-up. That is what this is all about; Obama wants congress to slap their seal of approval on a new regime of crappy loans that will eventually be dumped on US taxpayers. Here’s the story from Bloomberg:
Can you believe this hogwash? Regulators are asking the banks to retain a lousy 5% of the value on high-risk mortgages (so they can cover the losses in the event of another meltdown) and the stinking bankers are whining about it! Unbelievable. In other words, they’re being asked to put some “skin in the game” so they can pay off defaulting loans when they blow up the financial system again, and they don’t want to do it. The banks are fighting so-called “risk retention” tooth and nail, because they don’t want to tie up their capital. Imagine if your insurance company ran its business the same way? So, then your house burns down, and the claims agent tells you, “Sorry, Mr Jones, we can’t pay your claim because all our money is tied up in structured investment vehicles and dodgy debt instruments.” Are you okay with that? But that’s what the banks are doing, and they’re doing it because they want to be leveraged “N”th-degree to maximize profits. Besides, they know from experience, that when the system goes down again, the USG will ride to the rescue and pay off their debts. So why hold capital?
Keep in mind, that the banks can lend whatever amount they want to whomever they want. No one is stopping them. But if they want the government to guarantee the loan (or if they want government financing), they have to follow certain rules. And the rules have to be clear because the banks have shown that they can’t be trusted. Here’s more from Bloomberg:
This is so stupid it boggles the mind. “No, Mr Bankster, Uncle Sam will not guarantee your putrid loan if the applicant can’t come up with a measly down payment or if his monthly payments exceed the standard 36 percent of income to debt.” This is so tiresome. There’s no point in putting people into loans that they can’t repay. We tried that. It doesn’t work.
Now ask yourself this: Why are the banks so adamantly opposed to what-they-call the “stringent down payment requirement”? Down payments have been SOP for decades. A 10 or 20 percent down is an indication that a borrower is responsible enough to set aside some of his income for the future, which reflects positively on his creditworthiness. It’s also an indication that the borrower is not going to cut-and-run at the first sign that prices are falling. Stakeholders typically stay with the ship even after it’s hit the iceberg, which helps to stabilize the market and prevent prices from falling off a cliff. The banks know this, which is why they typically demand a down payment on loans that are NOT guaranteed by the government. It’s only when the government’s on the hook for the loss that they don’t give a rip.
Bloomberg again: “Groups including the Mortgage Bankers Association have been warning about the impact of rulemaking in an already tight market.”
Now there’s a surprise. So bankers hate rules and regulations? Really? And they also think its terrible that borrowers need to have decent credit scores to qualify for “government backed” loans? Will wonders never cease. Well they won’t have to wait much longer, will they, because Obama has promised to loosen those “onerous” rules so they can get back to business and start fleecing people like the good old days.
Let’s not kid ourselves, the banks have figured out what many analysts have known all along; that low rates, mortgage modifications, and massive private investment (speculation) are not going to be enough to reflate prices and generate another housing bubble. No way. It’s going to take a total breakdown in lending standards so the banks can, once again, provide hundreds of thousands of dollars to anyone who can sit upright and scratch his John Hancock on a mortgage app. That’s what it’s going to take to erase the 30% loss in the value on the stockpile of garbage mortgages the banks still hold on their balance sheets.
Here’s Obama again:
So Obama doesn’t just want to loosen regulations for new home buyers (No down payment, high debt-to-income ratio), he also wants to help refinance underwater homeowners who’ve been making their monthy payments regularly. But why? After all, the administration’s aggressive mortgage modification program (HAMP) is already providing low-interest refis for people who are as much as 125% LTV (underwater) What’s different about this program?
Ahh, that’s where it gets interesting. Here’s the scoop from Bloomberg:
“Private label”? So now the USG is going to guarantee the mortgages the banks concocted in their boilerrooms that didn’t even conform to standards that would allow them to be financed by Fannie and Freddie? That’s what Obama is pushing for? Yeegads! Here’s more from Bloomberg:
What? So if Congress doesn’t approve the bailout, then the Treasury will implement the plan anyway? Is that it? That doesn’t sound very democratic.
Wait a minute. Shouldn’t the investors or the banks take the haircut instead of taxpayers? After all, whose fault is it that 5 million families have lost their homes to foreclosure since 2007 and 11 million homeowners are presently underwater? Not the taxpayer. Let the responsible parties bear the costs. That’s the way the system is supposed to work, right?
And Merkley’s proposal is just one two bills now awaiting congressional action. The other is the Boxer-Menendez bill which “promises lenders they won’t be forced to absorb the loss on refinanced loans that default.” (Bloomberg) Great. So, while the Boxer-Menendez bill will not refi loans that are not backed by Fannie Mae and Freddie Mac, (no “private label” loans) it will move (an estimated) one million high-risk mortgages off bank balance sheets and onto the public’s ledger. This is how the free market capitalism works in the US today; all the profits go to Wall Street and all the red ink goes to Main Street.
Obama doesn’t care if struggling homeowners get a break on their refis or not. It’s all a joke. He’s just helping his bank buddies cut their losses while they set the stage for their next big heist.
Mike Whitney lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at email@example.com.
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