Post by the Scribe on Apr 15, 2020 6:20:28 GMT
The Conservative Origins of the Sub-Prime Mortgage Crisis
Everything you ever wanted to know about the mortgage meltdown but were afraid to ask.
prospect.org/infrastructure/conservative-origins-sub-prime-mortgage-crisis/
BY JOHN ATLAS DECEMBER 18, 2007
Hardly a day goes by without a news story about the accelerating number of foreclosures, an economic tsunami that is causing chaos in the housing and stock markets, the banking industry, and the global money markets, not to mention upending families and neighborhoods. Business leaders, activist groups, and Democratic presidential candidates are calling for our government to do something before the situation declines even further. The problem is worsening in every part of the country, but two early primary states -- Florida and Nevada -- are among the hardest hit.
The crescendo of criticism recently pushed President George W. Bush to announce a plan to freeze interest rates for up to five years for some homeowners who purchased homes with high-risk adjustable rate mortgages (ARMs) that are scheduled to be "reset" at higher rates, in many cases, by hundreds of dollars a month.
The Republican candidates for president generally supported the Bush plan but were reluctant to call for further regulations to protect borrowers. Some pundits, including former Texas Rep. Dick Armey, a right-wing Republican who now runs a conservative think tank, FreedomWorks, suggested that the Bush plan violated the president's oft-spoken zeal for allowing the "free market" to work. The media fell for Bush's media spin, describing it as a interest rate "freeze" and an "agreement" hammered out with lenders and investors. But in fact the Bush plan involves no mandates or legislation, just a voluntary agreement by lenders that lacks the force of law. There's absolutely no requirement that would force banks or investors to share the pain or be part of the solution. It isn't even clear if investors in mortgage-backed securities will allow the lenders to reset the rates. They may even file suit to halt the freeze.
Consumer activists, and the Democratic candidates, pointed out that the plan excludes most sub-prime borrowers, including those who are in the deepest trouble and are delinquent on their mortgage payments and facing foreclosure. Of the perhaps 2 million adjustable-rate mortgages that are expected to reset through the end of 2009, only 240,000 of them -- 12 percent -- would be covered by Bush's proposal, according to Barclays Capital, as reported in The New York Times. The Center for Responsible Lending, a nonprofit group, estimates that only 145,000 households will qualify for the rate freeze. Most borrowers will be on their own to negotiate with their lenders on a case-by-case basis. Many families who persuade banks to temporarily freeze their rates still won't be able to afford to make the payments, and will face foreclosure.
"It's very disappointing," said Michael Shea, executive director of ACORN Housing, a national group that provides homeownership counseling for low-income consumers. "Wall Street has made billions and now they're hardly paying anything at all" for their role in the sub-prime crisis.
Make no mistake -- it is a crisis. Since 1998, more than 7 million borrowers bought homes with sub-prime loans. One million of those homeowners have already defaulted on their loans The crisis is likely to get worse. Financial analysts predict that at least a quarter of these people -- over 2 million families -- will default and face the financial pain and psychological grief of losing their homes over the next few years.
Bush, who once touted his administration's goal as creating an "ownership society," may now go down in history as the president on whose watch ownership declined. The nation's homeownership rate has fallen during the last two years and will plummet further next year. Moreover, Bush's unwillingness to take bold steps to regulate lenders, brokers, and investors will guarantee that the next president will inherit a much bigger mortgage mess.
To many Americans, the crisis seems too complex to comprehend. To understand it, we need to know: What is the problem? Who benefited? Who got hurt? Who is to blame? Who should we help? What should be done? Although the immediate cause is the widespread use of sub-prime mortgages, the root cause is a decades old failure of government to adequately regulate the banking industry.
next conservatism.freeforums.net/thread/873/sub-prime-lending
Everything you ever wanted to know about the mortgage meltdown but were afraid to ask.
prospect.org/infrastructure/conservative-origins-sub-prime-mortgage-crisis/
BY JOHN ATLAS DECEMBER 18, 2007
Hardly a day goes by without a news story about the accelerating number of foreclosures, an economic tsunami that is causing chaos in the housing and stock markets, the banking industry, and the global money markets, not to mention upending families and neighborhoods. Business leaders, activist groups, and Democratic presidential candidates are calling for our government to do something before the situation declines even further. The problem is worsening in every part of the country, but two early primary states -- Florida and Nevada -- are among the hardest hit.
The crescendo of criticism recently pushed President George W. Bush to announce a plan to freeze interest rates for up to five years for some homeowners who purchased homes with high-risk adjustable rate mortgages (ARMs) that are scheduled to be "reset" at higher rates, in many cases, by hundreds of dollars a month.
The Republican candidates for president generally supported the Bush plan but were reluctant to call for further regulations to protect borrowers. Some pundits, including former Texas Rep. Dick Armey, a right-wing Republican who now runs a conservative think tank, FreedomWorks, suggested that the Bush plan violated the president's oft-spoken zeal for allowing the "free market" to work. The media fell for Bush's media spin, describing it as a interest rate "freeze" and an "agreement" hammered out with lenders and investors. But in fact the Bush plan involves no mandates or legislation, just a voluntary agreement by lenders that lacks the force of law. There's absolutely no requirement that would force banks or investors to share the pain or be part of the solution. It isn't even clear if investors in mortgage-backed securities will allow the lenders to reset the rates. They may even file suit to halt the freeze.
Consumer activists, and the Democratic candidates, pointed out that the plan excludes most sub-prime borrowers, including those who are in the deepest trouble and are delinquent on their mortgage payments and facing foreclosure. Of the perhaps 2 million adjustable-rate mortgages that are expected to reset through the end of 2009, only 240,000 of them -- 12 percent -- would be covered by Bush's proposal, according to Barclays Capital, as reported in The New York Times. The Center for Responsible Lending, a nonprofit group, estimates that only 145,000 households will qualify for the rate freeze. Most borrowers will be on their own to negotiate with their lenders on a case-by-case basis. Many families who persuade banks to temporarily freeze their rates still won't be able to afford to make the payments, and will face foreclosure.
"It's very disappointing," said Michael Shea, executive director of ACORN Housing, a national group that provides homeownership counseling for low-income consumers. "Wall Street has made billions and now they're hardly paying anything at all" for their role in the sub-prime crisis.
Make no mistake -- it is a crisis. Since 1998, more than 7 million borrowers bought homes with sub-prime loans. One million of those homeowners have already defaulted on their loans The crisis is likely to get worse. Financial analysts predict that at least a quarter of these people -- over 2 million families -- will default and face the financial pain and psychological grief of losing their homes over the next few years.
Bush, who once touted his administration's goal as creating an "ownership society," may now go down in history as the president on whose watch ownership declined. The nation's homeownership rate has fallen during the last two years and will plummet further next year. Moreover, Bush's unwillingness to take bold steps to regulate lenders, brokers, and investors will guarantee that the next president will inherit a much bigger mortgage mess.
To many Americans, the crisis seems too complex to comprehend. To understand it, we need to know: What is the problem? Who benefited? Who got hurt? Who is to blame? Who should we help? What should be done? Although the immediate cause is the widespread use of sub-prime mortgages, the root cause is a decades old failure of government to adequately regulate the banking industry.
next conservatism.freeforums.net/thread/873/sub-prime-lending