Subscribe to Moronmeter!Wayback Machine: Housing Crisis Warning September 2006
Unless you’ve been in a bomb shelter (or a coma) for the last couple of years you know about the housing crisis and the ensuing financial meltdown. Mostly I see politicians wagging their fingers at someone else and blaming them for it. Democrats want to put all the blame on Republicans for deregulating the financial/banking industries. Republicans want to blame the Democrats for pushing the banking industry into making more subprime mortgages to low-income earners, resulting in massive defaults.
Since neither Democrats or Republicans are responsible (according to themselves), I’ve been really curious as to who was actually sounding any warning bells and when did they start sounding them.
I mean, if the Democrats knew the Republicans had been leading us down the primrose path to financial destruction through banking/financial deregulation, surely they have been sounding alarms for years, especially since taking over Congress in 2006, right?
And certainly, if Republicans knew the Democrats had been priming the banking and financial industries for a massive tsunami of defaults, by pushing subprime mortgages, they would have been letting the people know about this ages ago, right?
Well, not so much. From what I’ve found so far, both Democrats and Republicans have played the situation pretty much by-the-rules: Ignore the problem until it is too bad to ignore, then blame the other party.
I’m still researching things, so maybe I’ll find some speech or report from Speaker of the House Nancy Pelosi (D-CA), sagely warning us about the impending housing market meltdown, or perhaps something from former Speaker of the House Dennis Haster (R-IL) proclaiming the dangers of increased subprime lending.
I’m not holding my breath, though.
One interesting thing I’ve found is an article by BusinessWeek, published September 11th, 2006, which delves into the ‘option ARM’ loan and how it was precipitating a wave of foreclosures, not just among high-risk borrowers, but amongst borrowers who would otherwise have been able to afford their homes.
To be fair, many of the people discussed in the article allowed themselves to be bamboozled, but let’s be honest, when you are signing mortgage papers they could slip in one about giving your left kidney to the mortgage company (all expenses paid by you, of course) and you wouldn’t be the wiser. Until, that is, they showed up at your door for the kidney.
This is kind of the same process that many of the lenders have been using to get people who were in 30 year fixed rate mortgages (at around 5-6%) to switch to these ‘option ARM’ loans. Well, except for the fact that instead of showing up for a kidney, they were sending over bills in which the mortgagee would either ADD a grand or so per month to their principal (by paying the low monthly payment they had been sold on) OR pay a higher rate than they expected. To add to the mortgagee’s pain – there are often onerous early release clauses in the mortgage contracts that would require the mortgagee to pay thousands (10-15k was mentioned for several mortgagees in the article) to refinance out of the option ARM.
When asked for comments, the mortgage companies and banks either declined to comment (citing “privacy” issues) or gave generic statements like “each mortgage is designed to meet the specific financial needs of a consumer.” Well, not exactly to meet the “specific financial needs of a consumer.” Mostly it sounds like they are written to meet the specific financial needs of a mortgage company, even if they had to mislead the consumer to get them on the hook.
The article also covers a few other interesting tidbits, such as accounting techniques that have allowed the banks to overstate the income these types of loans are generating, as well as those used to hide the losses. It also gives a brief description about how these high risk mortgages were spread around, which created the lovely mountains of ‘toxic’ debt that is clogging up the financial world.
If you want a small primer, which was written well before the mortgage crisis hit the economy full force, click on through and give it a quick read.
When you are finished, ask yourself if you recall anyone in Congress (Democrat OR Republican) sounding any alarms about these kind of questionable loans. I sure don’t.
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