brokedickdog
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Joined: 8/13/2010
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There is a tremendous amount of misunderstanding and misinformation that surrounds this issue - the housing crisis. The media has done a pretty good job of not telling the real story, and this for various reasons. Some of those include corporate control and some are as mundane as not being able to package a story this lengthy and complex in a 2 1/2 minute segment. I've interviewed with 4 different newspapers (local), totaling approximately 16 hours in all, and none of them has run a story based on our interviews. They've all said the story is beyond the comprehension level of the readers. I'm not sure I agree with that but I'm not the editor.
Beyond Matt Tiaibi with Rolling Stone, Andy Kroll with Mother Jones, Gretchen Morgenson with NYT and Amir Efrati with WSJ I'm not aware of any "main street" publication reporters that have given the issue consistent and long term research and coverage. Morgenson and Efrati have been the most voluminous and I've provided some of the research for both of them, but never a formal interview. There has been some coverage in some of the trade journals but I don't consider those to be "main street" publications. There has also been some coverage in other sources but it has not been as deep, as well researched or as consistently presented or published. I haven't seen everything so I expect I've missed some of it, but I do an awful lot of reading on this.
To begin with there was no massive conspiracy of home owners - which would need to include quite literally millions of them - to go out and lie on loan applications. Nor was there anything similar in relation to knowingly purchasing more house than they could afford. Think about it for a minute. It is simply not possible that millions of people simultaneously decided to wreck and destabilize their own lives by forcing the banks to repossess their homes, by forcing the collapse of the banking system, by forcing a taxpayer bailout of the banks, by forcing unemployment to reach double digits, etc.
Any large scale bad behavior falls at the feet of the players on the other side of the transactions, which could include Realtors, appraisers, mortgage brokers at every level, loan originators, agregators.... This list can become quite large. Accept that it includes all of the players up to and including the wall street wizards that created, packaged and sold the synthetic collateralized debt obligations and the credit default swaps. All of the other parties to the transactions were profiting from them. As the character of "Deepthroat" said in the late 70's film "All the Presidents Men" said, "Follow the money."
This quote in the OP is way off base: "that the government has to stop pushing people into mortgages they can't afford, and has to stop pushing banks into making those bad loans." To disprove that image that has so effectively been presented by the media, and to disprove that statement and others like it, is really an easy thing. Simply read the lending laws that were on the books at the time those millions of loans were being made and it is clear that "lenders" were involved in systemically violating those laws. Should anyone have the interest to read these laws (Truth in Lending Act, AKA, Regulation Z, and Home Owners Equity Protection Act) they are found here:
http://www.fdic.gov/regulations/laws/rules/6500-1400.html#fdictail
Whether they have been intentionally complicit or not it is certainly true that those charged with regulating and enforcing lending and securities laws failed utterly at their duties in the ramp up to this mess. Sadly it is also appearing that they are largely unwilling to do their jobs on the backside as well. Consider the SEC suit against Goldman Sachs. That suit was settled in amount of $550 million. Goldman makes that amount in a matter of days, thus that penalty really isn't much of a penalty at all. There have not yet been any criminal convictions in that matter, and though there are charges outstanding it is very limited in scope.
Most of the litigation that is occurring is being done privately, rather than by our regulatory agencies, state AG's, or US AG.
By failing to enforce and penalize in accordance with the magnitude of the violations, and the damage done to everyday people, the perpetrators have been allowed to enrich themselves through their bad deeds. Crime does pay, it seems, when it is more profitable to break laws, litigate, loose or settle, then pay a pittance of the ill gotten booty in penalty than it is to follow the laws.
An interesting turn in has occurred in the past several months. The large purchasers (these parties can and have included pension funds, insurance companies, municipalities, cities and states, and all of those are both domestic and foreign) of certificates in mortgage backed security pools, or trusts, have begun filing suit against the trusts for fraud and misrepresentation. The trusts acted as "middle men" on both sides of the transactions. They collected money from investors by preselling certificates (shares, if you will) and then went out and funded mortgages, that hadn't yet been written, through networks of originators and brokers. What is clear is that they defrauded the parties on both ends, and having positioned themselves in the middle, reaped hefty profits. But the loans being written for homeowners violated the lending laws referenced above (as well as others) and the packaging and selling of the certificates was misrepresented to investors. The latter was done with the assistance of the rating agencies, e.g., Fitch, Moody's, Standard and Poor, so there were numerous violations of securities laws.
Another interesting wrinkle is that private mortgage insurance carriers (PMI, Radian, MGAC, etc.) have been denying claims on foreclosed properties being submitted by these trusts and have been rescinding policies. The language written into these policies says, in layman's terms, "We're issuing these policies based on representaions made to us by others and we haven't researched the underlying loans at all. We rely on these representations as being true and accurate and that all loans are fully compliant with all laws. However, should it ever become known that any of these loans involved any violations of state or federal laws then, quite simply, we aren't going to pay. Further, we'll retroactively cancel the policies because nonconforming loans were never available for policies anyway." These carriers have skin in the game and now that the numbers of claims is skyrocketing, and to protect themselves, they're beginning to do the underlying research. Funny, but some of these insurance companies also invested in mortgage backed securities.
Fannie and Freddy have also been doing underlying research of their own. They've been stuck with a lot of this bad paper. So, in accordance with the terms of the purchase agreements, Fannie and Freddy are forcing originating lenders to buy back the bad paper. Trouble is the originators don't have any money now, and in fact never did. Originators were using money that was supplied by the investors and were merely acting as conduits.
It is our banking sector that dreamed up the plans and put them in place. Whether it intended these results is open to debate. But at present the house of cards is still in process of falling down, and will be directly for a while to come. There will be numerous other "ripple effects" for some time after that. It won't surprise me if we loose several decades before the country recovers socially and economically.
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Barney Frank Calls For Dissolution of Fannie and Freddie - 
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