Regulation has always been liberals’ solution when it comes to the economy and Barack Obama is no different on that account. The junior Senator from Illinois and Democratic presidential candidate recently gave us his enlightened opinion. Obama stated:
“The implosion of the subprime lending industry is more than a temporary blip in our economic progress. It is a cancer that, given today’s integrated financial markets, threatens to spread with devastating impact to housing and to our economy as a whole, unless we act to contain it.” Financial Times online August 29
When I first saw the word “implosion” I thought for sure he was talking about his foreign policy, but no, this was Obama’s take on how to fix the economy.
But what exactly does he want to contain? Obama wants to regulate and fine what he called “the unlicensed, unregulated, fly-by-night mortgage brokers who are hoodwinking low-income borrowers.” Aren’t those lenders being punished already with thousands of layoffs and dozens of mortgage companies going bankrupt?
“Lenders who are losing jobs, business, volume, are being fined by the marketplace every day since the mistaken loans were put out and that’s exactly how capitalism works. It doesn’t wait around for a government body to act,” said William Beach the director of the Center for Data Analysis at the Heritage Foundation:
Beach asked, “When Countrywide is on the verge of going out of business, and that’s the nation’s largest mortgage company, what more do you want?”
The most brutal thing that can happen to a company is for it to go out of business. All regulation would do is insulate companies from this harsh punishment the markets will provide to “unscrupulous” (as Obama put it) lenders.
It has become quite obvious what side the media has taken on this issue. They are constantly talking about predatory lending, and reminding us how the poor were taken advantage of. While economists tend to disagree on ways to solve the problems with the markets, the one thing they do tend to agree on is that the government should stay out.
Obama advocated “enact[ing] the regulatory and disclosure laws that the mortgage industry has been lobbying against.” Obama also supported government intervention and heavy regulation.
Alex Pollock, a resident fellow at the American Enterprise Institute, told BMI that one of the reasons for the subprime problem was that buyers didn’t realize what they were getting into. Pollock feels it better “to equip the customers to actually know what is going on and therefore protect themselves,” than to create more regulation.
Pollock himself has created a one page mortgage form that helps to break down exactly what a mortgage entails.
- Stuart James is a Research Analyst at the Business and Media Institute.
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wow
August 31, 2007 - 10:23 ET by ksimm81I have an even better idea. Why don't the homeowners research what they are doing before they decide to buy a house from ANYBODY!
Bad lenders or bad buyers
August 31, 2007 - 10:36 ET by MikeThe reason for subprime is low credit scores. The subprime market has allowed people to buy and own homes that would not have been able to purchase in the past. The reason for high rates is they are high risk loans. The media continues to make the buyers who are losing their homes as victims of bad people taking advantage of them. I want to know how many people that are not making their mortgage payments have new cars, taken vacations, or how many new flat screen tv's they have in their house. It is the same thing as people without health insurance; we should first take a look at the new census numbers that say almost half of the citizens who do not have insurance make over $50,000 per year. They can afford it, but chose not to pay for it, and now we all need to pay for them according to the Democrats. If there is going to be a fund but together for home owners, it should first go to the people who have made their payments, since they are the ones whose taxes are paying for any proposed bailout.
And if lenders are more
August 31, 2007 - 10:43 ET by sublight68And if lenders are more selective and critical of who they lend to, then they're labeled racist, elitist, etc.
Next they'll be mandated to lend to everyone at low interest rates regardless of their assets or background. And if the borrower defaults on the loan they shouldn't have qualifed for in the first place, then it serves the big evil mortagage lender right.
They can't win.
No worries home ownership is the newest found right
August 31, 2007 - 11:00 ET by MikeWe are getting to the point that everything is a right, home ownership, HD TV with cable, health insurance, two weeks paid vacation, high speed internet, and citizenship, even if you broke the law coming here. Of course there is nothing to worry about when it comes to paying for these new "rights", because we can just raise the taxes on the rich people, and cut them, we promise, on the middle class.
Exactly...
August 31, 2007 - 11:03 ET by indianaconservativeAbout 8-10 years ago the same thing happened to the sub-prime auto market. I don't remember people calling for the government to step in back then! I think we have the same problem as back then. Companies saw other companies making money in the sub-prime market. Instead of figuring out how that market really works, they just expand the scope of the current market to include these buyers. It didn't work back then for cars and it doesn't work now for houses. The secret is you have to treat customers with bad credit different than customers with good credit. In the auto finance market, the successful sub-prime lenders would call the custom the day that they became late. The sooner you got that customer in the better off you did. Of course your charge-off rate was still larger than the good-credit market, but you had a higher interest rate that would help to offset your losses on the risk. If you have a customer with bad credit fall behind by 60-90 days, you can pretty much forget about getting them back on schedule. Even if you could they would fall again because they know they can get away with it.
Well, it's so much easier
August 31, 2007 - 10:50 ET by motherbeltWell, it's so much easier to claim that consumers are stupid, and unscrupulous lenders take advantage of them.
Use the link and take a look at Pollock's simple mortgage form. It's great: anyone who reads that and doesn't realize what he is getting into, has grapes for brains.
The sub-prime market developed to serve people who couldnt' get traditional loans. It's the same for people with bad credit buying a car, you don't get the 0% financing; you pay 12-18% interest. Or car insurance with 4 accidents and/or tickets in the past couple of years; you don't get the "going" rate; you pay through the nose. That's because you are a huge risk.
Are there actually people who don't KNOW they've screwed up and have lousy credit? And the lenders aren't telling them; they are just soaking them"
Yeah, right.
These people want the house NOW and they are willing to take the chance. Everyone knows that if you don't pay your mortgage, you lose your house.
A lot of people take out home equity loans, too, in spite of the the fact that the house is used as collateral. Maybe we should go back to calling them what they are: second mortgages. Might make some people think before taking one out.
the best thing that the gov't could do is...
August 31, 2007 - 10:44 ET by c5thenABSOLUTELY NOTHING!!!
The companies teetering on the edge will go under and the borrowers that should never have borrowed as much as they did or for what they did, will become renters again.
Either way there will be a whole new generation of people that have been educated about loans, bad and good, as well as budgets and "living within your means". The "fly-by-night" lenders will be out of business and that is the harshest "fine" that can be levied by anyone.
Will someone please explain how a crisis with less than 1% of the mortgage loans in the country can cause the economy to "go into recession"?
The day that "politician" became a career choice is the day we started losing the Republic
Comeon, c5, you know that
August 31, 2007 - 10:58 ET by motherbeltComeon, c5, you know that everything is a crisis. How else do you demand the government come in and save the day?
Here's an example: flood insurance. When we lived in Florida, we bought flood insurance, even though we weren't in a "flood plain." Had a hurricane....sewers got backed up with debris, nearby creek overflowed, flooding nearly every house on our side of the street. Irony of all ironies: it came right up to the back door, but our house didn't get flooded. But our neighbors who didn't have flood insurance got free money from the government to fix up their houses.
Question: why pay the premium for private homeowners' flood insurance???
A better mortgage application
August 31, 2007 - 10:44 ET by Mica the MagnificentThat one page mortgage is still too complicated for some. Here's mine:
Name _______
I mean your name! __________
I mean your real name!! __________
What is the address of place you want to buy? ________
No, not your current address, the address of the place . oh never mind.
How much income do you earn annually? ________
O-k, I mean how much money do you make?________
O-k . .Do you even have a job?? _________
How much is the negotiated price for the home? ________
O-k, I mean when you spoke to the nice people who currently own the house, how much did you both agree the house will cost you? __________
O-k, in other words. . . .Geez! Can you have someone else fill out this form for you??????
LOL! The sad thing is, at
August 31, 2007 - 10:52 ET by motherbeltLOL! The sad thing is, at the end of all this, the result will probably be: OK, sign here; you're now a homeowner.
It would be nice...
August 31, 2007 - 12:15 ET by sarcasmoIf financial institutions all at least played by the same rules...Ain't happenin' though.
JMR
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