“Redlining” is a discriminatory practice that denied loans and credit to minorities only because they were minorities and is a blight on this industry. It has nothing to do with income level because “Poor” is a relative term. Someone making $10 an hour today would have been deemed middle class in the 1960′s and 1970′s. “Poor” is not a consideration of risk either because I have closed loans for people at this income level for homes well within their budgets and established qualifying ratios and they are still making their payments on time as well as there are many “wealthy” people with incomes over $100,000 that are in default.

The current credit problem is the result of lenders relaxing qualifications for borrowers with, in some instances major credit issues and lacking job histories, to obtain loans easier and generally without down payments. Most of those loans being “hybrid” adjustable rate mortgages providing 2 or 3 years of a low fixed rate which would convert to an adjustable rate adjusting either once or twice a year based on the LIBOR index. This provided home ownership for many people that otherwise wouldn’t have a prayer to buy a home. In the financial markets, we all say past performance is not indicative of future results however, you cannot teach old dogs new tricks. People, who demonstrate an inability to manage money and credit, rarely learn. The other anomaly is a major value increase in these indexes driving interest rates up once these loans hit the adjustment period causing substantial payment increases. Since many of these loans allow for very flexible and generous qualifications, once the adjustments hit, the loans became unaffordable.

Senator Schumer is correct in proposing that qualification should be based on the worst case scenario for the loan and with more conventional guidelines. Qualification for these loans has been based on an absolute best case scenario i.e. an interest only payment based on a 40 year payment amortization ignoring past collections and other credit issues. The banks created this mess by basically offering free money and probably don’t deserve to be bailed out but the government has some responsibility to protect the economy.

FHA does not make loans or hold the paper. All they do is provide an insurance policy for the lender against default. Since they are providing the insurance, they have the ability to dictate what they’ll insure and that is what is in negotiation now- what is an acceptable credit and payment history and what is not. FHA loans are bought and sold, held and serviced by all the major lenders.

Fannie Mae and Freddie Mac buy the loans that meet their guidelines but do not lend.

Liberty is about personal responsibility- from the individual to the corporation. The banks need to accept the responsibility as well as the people that accepted these loans.

That personal responsibility also extends to becoming educated about the subject you choose to discuss otherwise, as it has been attributed to Mark Twain, it is better to be thought a fool than to open your mouth and remove all doubt. This lesson provided to you free of charge and absent of malice by a liberal

Any way to obtain a reprint to send to my clients.

Thanks

Good Morning Gentle Readers: Lot of fall out and hand wringing lately over the creative financing that created the subprime mortgage markets and the wave of defaults that has swept from coast to coast in the wake of interest rate…

Of course, we don’t live in anything like a free market. Where did the banks get their lending capital? What role does the Federal Reserve play? What role do Freddie Mac and Fannie Mae play?

Well, from what I read, Sen, Dodd has a great plan to change the operationg rules governing the FHA, and allow them to take over the adjustable rate loans (coming due for reset)…. and convert them to fixed rate loans. So, the FHA moves “bigtime” into the mortgage / refi biz, if Dodd has his way?

Yesterday, it was the NY Federal bank which went into the asset-backed / commercial paper biz, accepting ” that paper” as collateral on loans to banks. ( this is a FIRST, in history).

LOTS OF RULE CHANGIN’ GOIN’ ON …more govt intervention / less private operation – is this more like Communism / Socialism, or what? Whatever did happen to the private marketplace?

Back to the FHA / Sen. Dodd … It was my original idea that if a BAILOUT of the adjustable rate homeowers was to be done, well, why not just give em’ each $15,000 , to allow them to buy-out of the adjustable loan ( refi penality)…and allow them to go to a private lender, to refi… i.e. let the marketplace work. Don’t have the govt. involved “from soup to nuts”…holding the “paper”, too.

But then, it occured to me that 63% of those loans were “liar loans”, so those individuals might not even qualify for a refi-to- fixed loan, esp. with the tougher lending stds, going into place (now that the horse is out of the barn).

So, hahahaha…yeah, I guess Dodd has a point – perhaps the govt. will (have to) be the one to hold it’s nose, look the other way…not ask for proof of income…and just ‘do the dirty deed…refi anything and everything that’s crawling out there…. Do anything to keep the 2 million homes from going into foreclosure, adding to the (already) huge supply of unsold homes.

Of course, those loans do have that sticky “refi penality” attached…. and those lenders who made those loan contracts (or the ones now holding them), will want the “refi penalty” money, won’t they?

You’re probably looking at $30 Billion to “buy out” those refi-penality clauses…I don’t think the lenders will simply hand over their portfolios to the FHA, without being compensated…they want that $30 Billion, right? ( and perhaps that’s why Wilbur Ross suddenly has an interest in owning some mortgage company assets? … I believe he’s already a ‘partner’ now, in Accredited Home Lenders? you’d have to check the news to see exactly what Wilbur is up to – but if he sees the FHA handing out money, to cover those refi penalities, well… money is money)