Friday, October 10, 2008

Bah Humbug to both parties.

Think about it. You are eaking out a living, paying rent and just making it. Maybe you a have one or two children. Maybe more. You want a bigger place. You want a home of your own. You want equity. But you have no or very little savings. How on earth are you ever going to reach the goal of your own home, part of the "American Dream"?

The operative word is DREAM. Not "right".

This current financial mess had its origins in the concept that regardless of income, you should not be denied a home loan. Pushed by the Democrats of the more liberal persuasion, the idea was to help lower income folks and minorities obtain their own home. The Democratic administrations encouraged high risk loans and Fannie Mae and Freddie Mac bought these loans and sold as mortgage backed securities. Much of the pressure on banks to make loans with a higher risk of default, came from the threat of discriminatory lending practices lawsuits.

Let's be truthful, here. The threat and cry of racism has been used to circumvent common sense. Realism is that due to various social factors, minorities, mostly represented in the past by African Americans , live in low income areas. Decent paying jobs are hard to come by, again for myriad reasons. Bottom line is they can just afford the rental homes they are in. It's a struggle. In this situation: low income jobs, high rents, they are not good candidates for a home mortgage loan. That's reality.

But the Dems said Not Fair! These folks deserve a home as much as anyone else. Stop your unfair lending practices. Make these risky loans. Sure, a certain percentage will default, but that's okay.

So, the "Trillion Dollar Commitment" to sell to ten million low income families was made by Fannie Mae in 1994. Loans were made, bought by Fannie Mae and Freddie Mac. Lenders on the make for large commissions wrote mortgages for little or no money down. And, oh, by the way, some of the lenders wrote the mortgage for more than the home was worth and may have whispered, maybe, that your payments might escalate substantially if the rates changed. Everyone left the loan office happy: the lender with a nice commission, the buyer with a feeling of pride and security. Let's not forget that during this time the Fannie Mae execs and their Congressional lobbyists made a fine pile of money. Subprime reigns.

Home Equity loans taken by mddle income homeowners flourished. Homes were used as banks, with the belief that eventually the loan would be paid off, perhaps by selling the asset at a higher value. No fear and too much optimism reigned here. Or, it was a "cover the current crisis and worry about paying later" mentality.

Loans were bundled into securities and sold to investors. The Republicans, not to be outdone, urged less regulation. A free market operates better; good stuff will trickle down to everyone.

Institutions and investors who bought the mortgage backed securities also bought credit default swaps as insurance against possible loan defaults.

Then rates went up, real estate values went down, the defaults escalated, and eventually Fannie and Freddie went belly up. Failures up the gazoo followed and the market is now down, oh about 3000 points and continuing its fall. And Europe is taking the big slide down as well.

Pity some of the suckers now being foreclosed. They are worse off than before they walked into the lender's office.

So, who to vote for? The Democrats with a sometimes too socialistic agenda or the Republicans with the too optimistic "all business is good--trust them" outlook?

Bah Humbug on all!

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