A Quote by Thomas Sowell
No one pushed harder than Congressman Barney Frank to force banks and other financial institutions to reduce their mortgage lending standards, in order to meet government-set goals for more home ownership. Those lower mortgage lending standards are at the heart of the increased riskiness of the mortgage market and of the collapse of Wall Street securities based on those risky mortgages.
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After the risky mortgage-lending practices fostered by government intervention led to massive defaults and foreclosures that caused financial institutions to collapse or be bailed out, Congressman Frank changed his tune completely.
Securities based on risky mortgages are what toppled financial institutions but it was the government that made the mortgages risky in the first place, by making home-ownership statistics the holy grail, for which everything else was to be sacrificed, including commonsense standards for making home loans.
Riskier mortgage lending practices, imposed by government, were what set the stage for many mortgage payments to stop and thus for the financial disasters that followed. Political rhetoric, echoed in the media, seeks to obscure that painfully plain fact.
A lot of these things have hurt the average American. When they look at the banks and they say, "Well, the bank's talking its own game," I am telling you, what we've done in mortgage lending, our inability to have proper regulations around mortgages, has hurt average Americans. First-time buyers, immigrant buyers, prior defaults, self-employed, because they can't get a mortgage. Will it make a big difference to JPMorgan Chase? No, but you're hurting my fellow citizens. Let's go at it, and let's fix it.
The same with the mortgage brokers that were selling people mortgages they couldn't afford. We shouldn't pay them on each mortgage they write. They should have what they call "skin in the game," where they've got to reimburse us if the guy who sold the mortgage defaults.
The financial collapse of 2008 got its start with predatory mortgages, that weren’t sold by community banks and credit unions, they were sold by fly by night mortgage brokers who had almost zero federal oversight and then the big banks looked over, saw the profit potential and they wanted it bad. So they jumped in and sold millions of these terrible mortgages while the bank regulators just looked the other way.
Congressman Watt has a long history of advocating against predatory lending and the mortgage practices that caused millions of families to lose their homes.
Except for a handful of banks that just keep a handful of their loans in portfolio, on their balance sheet, every other loan that's originated in the United States - whether from a bank, mortgage company, mortgage broker - is sold into the secondary market.
What began as a subprime lending problem has spread to other, less risky mortgages and contributed to excess home inventories that have pushed down home prices for responsible homeowners.
In June 2005, mortgage rates were at 40-year lows, and risk premiums on mortgage securities were at all-time lows. Once the banks migrated to the subprime area, there was little else that could be done to send housing prices higher.
Ask most people who live in a home and have a mortgage on it whether they own their own home and the answer is almost guaranteed to be a resounding 'yes'. Yet it's the wrong answer. Technically speaking, until they have paid the mortgage off, they don't own it. Herein lies the difference between reality and illusion, between ownership and control. This confusion lies not only at the individual level, but also at the heart of government thinking.
But 300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently. And that got billed into a $20 trillion residential home market. Lending was done based on it, and everybody did a lot of foolish things.
What the mortgage bubble was all about was big banks like Goldman Sachs taking big bundles of subprime mortgages that were lent out largely to low-income, highly risky borrowers, and applying this kind of magic-pixie-dust math to these bundles of securities and slapping AAA ratings on them.
The myth is that if housing prices go up, Americans will be richer. What banks - and behind them, the Federal Reserve - really want is for new buyers to be able to borrow enough money to buy the houses from mortgage defaulters, and thus save the banks from suffering from more mortgage defaults.
There is no better way to quickly buoy hard-pressed homeowners than helping them take advantage of the currently record low fixed mortgage rates and significantly reduce their monthly mortgage payments.
The government is promoting bad behavior... do we really want to subsidize the losers' mortgages... This is America! How many of you people want to pay for your neighbor's mortgage? President Obama are you listening? How about we all stop paying our mortgage! It's a moral hazard
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