mortgages

Massive Justice Department Attack on Banks?

by Hans Bader on September 2, 2011 · 15 comments

in Bailout Watch, Economy, Legal

A monumentally-destructive Justice Department attack on banks may soon occur. Earlier, I wrote about how the Obama Justice Department is now forcing banks to make risky loans (in the name of “fair lending”), thus planting the seeds of a future financial crisis. In response, I received an e-mail from a former Justice Department lawyer who told me that the Justice Department’s HCE (Housing and Civil Enforcement Section, Civil Rights Division) is planning to block foreclosures across America (“across the whole [banking] sector”), even for irresponsible deadbeats who deserve to be foreclosed upon, citing racial disparities in foreclosure rates (which generally exist between black and white borrowers due to causes unrelated to intentional discrimination — as the Supreme Court has observed, racial disparities often occur for reasons completely unrelated to racist decision-making, as it has noted in cases like Richmond v. J.A. Croson Co., Watson v. Fort Worth Bank & Trust,  and United States v. Armstrong).

He wrote that “there is a unit in the HCE section headed by a nut running this. They are next going to BLOCK foreclosures based on this theory. It is part of an administration wide-strategy to stop foreclosures.  I’ve heard from people who have participated in the internal meetings.” He also asked that I not print his name yet, but allowed me to pass on the content of his e-mail.

[click to continue…]

Obama Justice Department Forces Banks to Make Risky Loans, Planting the Seeds of a Future Financial Crisis

by Hans Bader on August 31, 2011 · 1 comment

in Bailout Watch, Economy, Legal, Politics as Usual, Property Rights, Sanctimony

The Wall Street Journal today writes about how the Obama administration is repeating the “mistakes of the past by intimidating banks into lending to minority borrowers at below-market rates in the name of combating discrimination.” Assistant Attorney General for Civil Rights Thomas Perez has argued that bankers who don’t make as many loans to blacks as whites (because they make lending decisions based on traditional lending criteria like credit scores, which tend to be higher among white applicants than black applicants) are engaged in a “form of discrimination and bigotry” as serious as “cross-burning.” Perez has compared bankers to “Klansmen,” and extracted settlements from banks “setting aside prime-rate mortgages for low-income blacks and Hispanics with blemished credit,” treating welfare “as valid income in mortgage applications” and providing “favorable interest rates and down-payment assistance for minority borrowers with weak credit,” notes Investors Business Daily.

Under Perez’s “disparate impact” theory, banks are guilty of racial discrimination even if they harbor no discriminatory intent, and use facially-neutral lending criteria, as long as these criteria weed out more black than white applicants. The Supreme Court has blessed a more limited version of this theory in the workplace, but has rejected this “disparate impact” theory in most other contexts, such as discrimination claims brought under the Constitution’s equal protection clause; discrimination claims alleging racial discrimination in the making of contracts; and discrimination claims brought under Title VI, the civil-rights statute governing racial discrimination in education and federally-funded programs. Despite court rulings casting doubt on this “disparate impact” theory outside the workplace, the Obama administration has paid liberal trial lawyers countless millions of dollars to settle baseless “disparate impact” lawsuits brought against government agencies by minority plaintiffs, even after federal judges have expressed skepticism about those very lawsuits, suggesting that they were meritless.

[click to continue…]

More Bailouts, Urge Left-Leaning Journalists

by Hans Bader on August 23, 2011

in Bailout Watch, Deregulate to Stimulate, Economy, Legal, Regulation

Left-leaning journalists are urging more mortgage bailouts to try to increase consumer spending, since they erroneously think that inadequate consumer spending is the principal cause of the current bad economy. This is a fallacy: As economist Mark Calabria has noted, consumer spending is currently high as a percentage of the economy compared to most periods in American history, and is low only compared to the unsustainably high levels reached during the housing bubble, when people borrowed rather than saved. It is corporate investment, not consumption, that is too low and needs to rise. Companies, and even Democratic businessmen, are afraid to invest and create new jobs now, because they fear costly, unpredictable new federal regulations and mandates from the Obama administration (such as the 2010 Dodd-Frank financial law, and the health care reform law, whose estimated cost just went up by another $50 billion annually and which will reduce the size of America’s work force by hundreds of thousands of people).

Apparently thinking that the government can create money out of thin air through mortgage bailouts, The New York Times‘s editorial board yesterday urged the Obama administration to pressure banks to cut the principal balances of people who imprudently borrowed too much money, even as it admits that such “principal reductions are seen as rewarding reckless borrowers,” since doing so will “free up money for borrowers to use for paying down principal or consumer spending.” But doing that doesn’t create any new wealth, or free up new money, all it does is transfer money from savers to borrowers. Enriching borrowers at investors’ expense results in investors feeling poorer and spending less money, reducing economic activity related to their purchases. The Times just ignores the fact that forcing banks to write off loans will harm bank shareholders, resulting in them spending less money. Thanks to my recent losses in the declining stock market, which will make it harder for me to ever retire, I have already reduced consumer spending, and to save money, I no longer eat out in restaurants.

[click to continue…]

Foreclosure Moratorium Would Impose Huge Losses on Taxpayers

by Hans Bader on October 27, 2010

in Bailout Watch, Economy, Legal

“Taxpayers and the federal government would be among the biggest losers if officials heed calls from some legislators and homeowners rights groups to stop millions of foreclosures across the country because of possible paperwork problems,” reports the Washington Times. “The Treasury Department is majority owner of one of the biggest mortgage companies, Ally Financial, formerly GMAC.”

“Despite much political posturing over improperly assigned foreclosure documents, ‘robo’ signatures and other irregularities . . . there does not appear to be any substantive questions’ about the legal rights of banks and investors to foreclose against long-delinquent homeowners in most cases,” said Ed Pinto, a mortgage analyst and former chief credit officer for Fannie Mae (a position he held back in the days before it began buying up and mislabeling vast numbers of subprime mortgage loans, leading to its current taxpayer bailout).

A moratorium would also impose huge losses on investors and retired people.  As noted earlier, if your 401(K) has shrunken recently, it may be due to falling bank stocks, like Bank of America stock, which has fallen from over $19 a share to less than $12 a share over the last six months.   Many if not most 401(K)s indirectly own Bank of America stock, through their mutual fund holdings.  Its stock value has fallen due to the possibility that paperwork errors and securitization may thwart repossession of homes though foreclosure.   Law professor Richard Epstein says a halt to foreclosures would be a disaster for “prudent borrowers and lenders,” while AOL’s Marty Robins says it would delay “economic recovery” and increase mortgage “interest rates.”  A news story illustrated the negative ripple effects of halting foreclosures.  Bank of America also reported a $10 billion loss due to restrictions on debit cards contained in the 2010 Dodd-Frank Act, restrictions that will also harm consumers.

Government Uses Takeover of Mortgage Giants to Deliberately Increase Their Massive Losses at Taxpayer Expense

by Hans Bader on January 5, 2010

in Bailout Watch, Economy, Politics as Usual, Precaution & Risk, Regulation, Sanctimony

The Wall Street Journal notes that the Obama administration has used the federal government’s bailout of mortgage giants Fannie Mae and Freddie Mac to do the exact opposite of what the federal government claimed it would do when it took them over a year ago.  It took them over in the name of winding down their risky loan portfolios, so they would stop running up losses at taxpayer expense.  But the Obama administration is deliberately making them run up huge losses to help out irresponsible borrowers who potentially might default on their mortgages.  “In today’s Washington, we suppose, it only makes sense that the companies that did the most to cause the meltdown are being kept alive to lose even more money.”

Over Christmas Eve, the Obama administration not only lifted the $400 billion limit on the bailout (and showered their CEOs with cash), but also ended “a key requirement of the 2008 bailout—that Fan and Fred begin shrinking the portfolios of mortgages they own on their own account, which total a combined $1.5 trillion.”

The Obama administration is now deliberately making them lose money:  “the government has directed both companies to pursue money-losing strategies by modifying mortgages to prevent foreclosures. . . Fannie reported last quarter that loan modifications resulted in $7.7 billion in losses.”

“Much of this is being done off the government books,” to hide the costs of the Obama administration’s record deficit spending.  And their CEOs are being paid a fortune, the Journal notes, because “Fannie and Freddie are exempt from the rules” limiting compensation at private banks.

The mortgage crisis was caused partly by the reckless government-sponsored mortgage giants Fannie Mae and Freddie Mac, and partly by the affordable-housing mandates imposed on them.

But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”

And banks will now be pressured to make even more risky loans.  The House has approved Obama’s proposal to create a politically-correct entity called the Consumer Financial Protection Agency. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”  The Community Reinvestment Act was a key contributor to the financial crisis.  But the Administration’s proposal would direct the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness.

Obama’s financial-regulation plan is “largely the product of extensive conversations” with two lawmakers responsible for the current financial mess, the corrupt Chris Dodd, and Barney Frank.

Another $75 billion in taxpayer money is already being wasted on mortgage bailouts that economists and real estate experts say is actually harming the economy and the real estate market.

Mark-to-Markets for Dummies

by Iain Murray on September 22, 2008 · 4 comments

in Economy

Best short explanation of the mark-to-markets issue I have yet seen:

Imagine if you had a $200,000 mortgage on a $300,000 house that you planned on living in for 20 years. But a neighbor, because of very special circumstances had to sell his house for $150,000. Then, imagine if your banker said you had to mark to this “new market” and give the bank $80,000 in cash immediately (so that you would have 20% down), or lose your home. Would this reflect reality? Not at all. Would this create chaos? Absolutely.

More on this here (hat-tip Ramesh Ponnuru).