Obama: fines and bailouts

Good morning. Barack Obama wants to fine unscrupulous lenders to pay for a housing bailout. The Financial Times: "Unscrupulous lenders who deceptively sold subprime mortgages to millions of Americans should be fined and the proceeds used to help bail out borrowers facing a wave of foreclosures, according to Barack Obama."

Our first take on this is that it is likely impossible and probably not a serious proposal, and is a piece of posturing.  We'd like to be proved wrong on that, but how does Congress get money out of New Century Financial and scores of other subprime lenders that are out of business? Get in line in bankruptcy court? Who determines which subprime loans are "deceptive"? And, as commenter Tim K. points out, how do you separate the truly deceived borrowers from the speculators and flippers who were gambling on real estate with someone else's money?

From the FT: "Mr. Obama blamed lobbyists working on behalf of lenders for obstructing tougher regulation of the subprime industry, adding: 'Our government failed to provide the regulatory scrutiny that could have prevented this crisis.'"

More of our take: This is certainly true; it's also true that Sen. Obama and the Democratic Party were part of that government failure. Blaming lobbyists is a campaign theme of his -- a shrewd one, we think -- intended to paint Sen. Clinton in an unflattering light.

We'd like to give you a link to the entire Obama proposal -- an op-ed in today's Financial Times -- but it is behind an expensive pay wall, and L.A. Land is cheap. (What's up with that, writing about the American housing crisis in a British newspaper?) Here's the part that proposes a bailout:

"One way to protect innocent homeowners –- at least until this crisis passes –- is to establish a fund to help people refinance or sell to avoid foreclosure. We can partially pay for this fund by imposing penalties on lenders that acted irresponsibly or committed fraud."

Your thoughts? Comments? Insights?
Hat Tip: Tex

Comments

[jemarqu]

MyLessThanPrimeBeef wrote: "Ron Paul said that three years ago?"

Not quite in those words. He did say "But capitalism is not to blame for the housing bubble, the Federal Reserve is."

[investorguy]

Fed Chief Bernanke, according to the Washington Post, is already urging lenders to come up with creative new lending programs for low income borrowers.

I told you so.

And before AnnS gets her dainty underthings in a knot, I do NOT think this is a good idea. It perpetuates the problem, although not as much in markets outside of LA, New York and San Francisco. Besides, I'd much rather do seller financing and make the money myself.

And as a side note, designed to get the doom and gloomers in a snit, while prices dropped over the last year in LA and other markets, Seatlle and other markets posted gains, NBC reports.

[jemarqu]

Investorguy, The Feds got us into this mess, you trust them to make it all better by "urging lenders"?

[cjp]

This is insanity. No one is going to "lose their homes." Built housing stock decays very very slowly. It does not go up in smoke upon foreclosure. The population demanding housing does not change overnight because of some foreclosures. What will happen is that the banks and big corporations will either take the hit or take ownership and RENT to all the people who should have stayed renters in the first place, thereby saving them millions in finance charges. The houses are built. No one will lose anything. Some people might have to move.

A bailout is not just unfair-- it will hurt everybody.

[Name (required)]

Barack Obama is unelectable and will lose. So will Hillary.

[investorguy]

jemarqu: No, I don't. READ my post again... I wrote: "I do NOT think this is a good idea."

But I posted a couple of weeks ago that lenders would be back in the subprime business very shortly. And several people challenged that as impossible. It's not.

[RE in SB]

Thank you for helping me decide WHO NOT TO VOTE FOR IN THE NEXT ELECTION!

[G. E. Vierheller]

The number of documents to sign, initial, or both when buying a house is overwhelming and mind-numbing. Long gone are the days when a simple transaction completes the transference of ownership. Having gone through this absurd ordeal I am unsurprised that greedy lenders, real estate agents, mortgage companies, escrow companies and their ilk, hungry for more quick, short-term profits, purposely confuse and abuse customers, knowing full well those with poor credit who dared dream of owning a home were easy marks. Fine the loan hustlers? Absolutely. Bail the lenders, et. al., out? Never. Their greed got them into this mess, let them suffer.

Re-align Fannie Mae and Freddie Mac to help the hope-to-be homeowners, and to regulate the avaricious, cold-blooded money grubbers.

[investorguy]

G.E.: You're right on the money (so to speak). Fannie and Freddie are the logical sources for working this out.

[C]

People need to take personal responsibility. I agree with jemarqu that most "people in foreclosure were not tricked out of their homes." I want to own a house too, but am still renting because I know I cannot afford a huge mortgage. Why should the irresponsible subprime mortgage holders and/or lenders be bailed out of a mess they created themselves? We should not be rewarding irresponsibility in this manner.

[J]

Another stupid idea. No bailout whatsoever!!!!

[Dr. JwB]

investorguy: Seattle looks like a smaller, later version of LA to me, and to Seattle's Bubble Watchers.

http://seattlebubble.com/blog/category/behind-the-cycle/

[Allen]

I'm a lifelong Democrat, but I'm totally opposed to any proposals by Obama or Clinton or anyone else to bailout homeowners caught in this mess. The fact is that most borrowers knew what they were getting into, or they certainly should have known. The purchase of a home is the biggest financial decision that most people ever make and if someone signs off without knowing what they're getting into then it's their own fault. Why should others have to pay for their ignorance or their losing gamble on the real estate market? As soon as we implement a bailout, the first people in line for federal assistance will be the very same speculators and irresponsible borrowers that caused this disaster, looking for the rest of the taxpayers to save them for misjudging the market. And what about the greedy mortgage brokers that wrongly originated these time bombs, collecting their commissions and then moving on? Why do they manage to escape responsibility here? A federal bailout is a ridiculous solution that some politicians are pushing during an election period to win the support of more voters.

[c-t-m]

I make $100,000 a year. I want to buy a Bently Coupe car that costs $325,000. I figure the payments will come to about $85,000 a year over four years. If I sign the loan documents and then claim I am living out of my car, will Obama's government give me money to keep it? If so, he bought my vote.

[c-t-m]

Every packet of loan documents is signed under penalty of perjury. The loan approval process is legally rquired to vet the records for accuracy. The loan officer AND the lender swear under penalty of perjury the information is accurate.

Every holder of bad loans needs to sue the companys AND every single real estate agent AND every loan officer for every fradulent document signed. "Liar Loans" or overstated, the individals goin gafter a percentage - agents collect 3-7% of a sale, loan officers get 1% - gamed the system and pushed things to collapse.

Despite the "victim" culture of American politics these days, those who took out loans are responsible as well, so the only way is to go after EVERYONE. Those who took loans they cannot afford or one speculation funded by fradulent filings are deservedly losing their homes, money and shirts. But those individuals in the system who signed off were co-conspirators and they should be tracked down and the loss recouped.

[CaliforniaDreaming]

CTM said--

"Every packet of loan documents is signed under penalty of perjury. The loan approval process is legally rquired to vet the records for accuracy. The loan officer AND the lender swear under penalty of perjury the information is accurate."

This is really the point here for all of these people crying "fraud" in their mortgage proceedings. Are the loan applications truly fradulent? And this cuts both ways, if the borrower signed a loan application with a false income stated on it, then they have just committed fraud- not the lender.

I really suspect that the number of truly fraudulent loans on the part of the lender is small. I thiink most financial institutions would be too smart not to CYA and write the documents so that they would be defensible from their side. Now, whether the borrowers actually read and understood the documents is another story.

I'm just glad to see some reality injected into this finally.People who make $70k (or less) have bought $700K houses because their mortgage broker said that it would work. Obviously, this isn't true or sustainable and the market needs to be allowed to make its corrections.

[Troy]

I agree with Obama someqwhat to a point. You may not be able to tell who all the lenders are that took advantage of overly enthusiastic homeowners but you can surely tell who some of them are and fine them. When lenders know that some want to be homeowners have poor credit but still get them into a home that they know is damn unaffordable then perhaps those lenders need to be looked at to impose penalities against them. And also since there is a penalty of perjury when signing loan docuements by both parties that is another avenue to use to impose penalties against lenders, this may take awhile but it can be done. Also if the Feds are going to help out banking instutuions or other companies when they face a financial crisis why can't the fedds help home owners. Take some of that money given to coporate farmers and help people to keep their homes.

[Anthrodiva]

Why not copy these posts and email them to Obama? I did this when Hillary made her similar ill-advised comments and I imagine others did too, 'cause at the next debate she was saying that the solution to the mess is 'complicated' and she did not reiterate her call for a bailout. They can learn, too, especially when people who are their sought demographic give them reason for pause.

[Shanty]

Is Obama crazy? No sympathy for the borrowers or lenders from me. No bailout. Who in the world thinks they have a right to live in a 4,000 sqft. home with a $60,000 income? If you needed a big home should have bought somewhere in or out of the country where the price matched your income. My husband and I live in a 800 sq ft. formerly rat-filled house that's 80 years old with a baby and 3 dogs, because we were extremely conservative in our choices. No master bedroom, no granite counter tops, no walk-in closet, no valuted ceilings, no stainless steel appliances, and certainly no central air, but a nice yard at least for the dogs. Now, we have the money to move way up but we have to wait till this mess that was caused by greed stabilizes.

[E.Soto]

DB, who do you think pays the interest on the municipal bonds that the state would have to issue to provide home loans at 5%? Taxpayers do. In other words: a bailout in disguise. Even if the state does that, you mean to tell me that anyone should be able to get a mortgage at 5%? Shows your knowledge of the finance world, return for lenders/investors is based on risk. Your probably looking for a way out of an outrageous mortgage you signed up for..........

[Shirin]

I disagree with the bailout. Before we bail out homeowners who signed off on houses they couldn't afford in the expectation of making a big profit, we should rewrite the bankruptcy code to protect student borrowers who are (1) far more inexperienced in money matters and are (2) unable to cure their ridiculously inflated college loans via going through bankruptcy. Right now student loans are making permanent wageslaves of our young. These are the folks who are also going to be stuck with the bill for social security. They deserve help far more than the housing gamblers.

[Kelly]

Why is it everyone has a plan to bail out people who made bad choices and got into houses they can't afford; but, two years later, no one has a plan to bail out the people of New Orleans who lost their homes to government mismanagement of the flood wall system? We can find billions to help greedy Americans but next to nothing for the innocent.

[Carmel]

Bailing out people who were foolish enough to take on more debt than they can handle is absolutely ridiculous. House prices are insanely high and need to come back down to a level supported by economic fundamentals. Otherwise you will shut out a whole generation of potential home buyers.

People signed on for these ridiculous Option Arms because they were giddy with the thought of their homes appreciating 20% or more per year. The government has NO business bailing out greed and stupidity. This is akin to bailing out Las Vegas gamblers.

Prices need to drop from their absurd levels. They were only inflated up to these levels by this "Exotic Lending".

[woof]

no bail outs .... and how about dropping the tax subsidy (interest deductions) bail outs are bail outs in what ever form, let us level the economic playing field

[MyLessThanPrimeBeef]

Mortgage interest deductions encourage responsible homeownership (in theory, at least). These are rules, whether you like them or not, everyone knows in advance. And if you don't like them, you can try to change it, so that in the next game, we play by the new rules. Bailouts are different in that rules are changed in the middle of the game... retroactively, no less. Everyone knew there would be penalties for reckless borrowing, but now, they are being told the accrued penalties will be waived.