United We Stand, Divided We Fall

The Economist (October 25, 2014) penned an article entitled ‘Structurally unsound’ with sub heading ‘America restores the weak lending standards that led to the housing crash’. In the last melt down of the housing market starting in 2007 that caused the great economic contraction in the US and the world, the politicians blamed the banks and the banks blamed the politicians. Specifically, the banks indicated that ‘the politicians enthusiasm for expanding home ownership, even if it meant small deposits and low credit standards, …had really fomented the disaster’. It appears both the politicians and the banks got the message. The politicians tightened up on home loan mortgages by requiring substantial down payments and much higher lending standards for the home mortgage applicants. The banks took a drubbing as they paid billions of dollars in fines related to those bad loans. However, less than 7 years later, the politicians have forgotten the disaster they created and have returned to form. President Obama appointed Mr. Melvin Watt, a career politician, as the Director of the Federal Housing Finance Authority in 2014. He favors home ownership for all whether such makes economic sense or is in the best interest of the persons being accommodated. Specifically he is advocating and planning to implement “mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government backed housing giants the Housing Finance Agency regulates’. This is insane! We just spent billions of dollars bailing out these institutions and many billions more to ameliorate the great economic contraction that they caused. Didn’t we learn our lesson from 7 years ago? It seems not. It gets worse however. In order to induce the banks to make more loans under suspect circumstances, Mr. Watt has limited the ways the banks can be liable for loans sold to Fannie Mae and Freddie Mac. In addition, the federal regulators have weakened the standards that allow banks to securitize and sell mortgages. The banks no longer need to hold a 5% stake in these loans nor is their a 20% deposit requirement (it is now no deposit) and the borrower income limit was increased to 45% from 35%. This is more insanity. I was in Hong Kong in 2008 when these bonds were failing. The people were mad as hell and were suing the brokers and their employers that sold these securities as ‘ very safe’ investments ‘just like guaranteed bank CD’s, just with a little better interest rate’. The Korean bondholders who got burned rioted. This new set of policies that return us to another economic disaster cannot be allowed to stand. It is imperative that Congress take appropriate action given the arrogance and stupidity of another appointee of the President.
Harry Pukay-Martin