Posted By LambChop
In 2008, the Subprime mortgage Scandal sent the United States economy reeling on the brink of meltdown, as the housing market bubble burst compounded by bad policy:
1. Securitization was a financial innovation that allowed the mortgage market to access broad funding, but also allowed lenders/originators to pass along risk to third parties.
2. Government intervention with banks, buoyed the Community Reinvestment Act under Clinton caused banks to increase, subprime home mortgage originations- rising from 8 percent in 2001 to 21 percent in 2005.
3. 80% of subprime loans were packaged as mortgage-backed securities (MBS).
4. HALF of all foreclosures from 1999 to 2007 were on subprime loans.
Since Obama took office, very little has been done to address housing issues. The Obama administration has aggravated long-term unemployment by declaring business the enemy, misusing stimulus funds and continuing to encourage the Federal Reserve’s dangerous tinkering - artificially reduced interest rates and implementation of QE3.
The FHA is on the brink of insolvency and the Obama administration will no doubt consider a bailout to the quasi governmental agency. Every year under Obama, the FHA missed its statutory capital requirement with a shortfall that totals $56 billion.
And what of the new home loans?
Instead of paying attention to the warning signals from the housing market or at least considering that more of the same policies would cause yet another crash, The Obama administration should have focused on smart regulatory actions to affect loose credit standards (tighten underwriting standards), curtail excessive leverage in the system and allow banks to asses risk on their own. But it has not. Instead, the FHA is back on the path of unnecessary risk – backing new home loans to borrowers who defaulted on past mortgages within the past three years, with lower5 credit scores with 3% down.
In what looks like government Ponzi scheme of Bernie Madoff proportions, the administration brilliant solution to this. Understand taxpayers have already bailed out Fannie Mae and Freddie Mac to the tune of $137 billion.
- Raising mortgage-insurance premiums and selling off delinquent loans.
- Find private lenders who happen to be same source the government has targeted to pay for its housing policy mistakes throughout the crisis. "
- The administration has already shaken down five major banks: Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Ally Financial, and Citigroup to pay at least $500 million into the FHA's capital reserve fund to settle alleged mortgage fraud and foreclosure claims
- Attorney General Eric Holder has authorized five more lending-discrimination suits, while opening another 30 investigations against banks to fund punitive funds to prop up the agencies.