More on the mortgage crisis

The government just cannot do enough! After legislation last week by congress to help out in the credit crisis, the Federal Reserve has now taken up the charge of doing good. The news story below blames it all on the lenders; lenders who made loans to borrowers without proof of income and charged higher interest rates to offset the risk.The headline to the news story, "Fed taking on abusive lending practices". Notice the word "abusive". The government is here to protect you from abuse.

No one mentions the fact that the bad loans the Federal Reserve is trying to eliminate has already been eliminated by the market, that magical phenomenon. No one will buy the bad loans anymore so the lenders have to protect their loans by making sure the borrower can repay the loan. Hence, no more bad loans. The Federal Reserve is wasting our time, and theirs.

Had real estate prices kept going up at 20% per annum we would not have heard about a credit crisis.

Why did the government not protect the borrowers before now? There are laws against fraud. When a borrower goes to a lender, they have been told the government has approved the lender by all kinds of licenses and regulations already in place. The borrower never learns to appraise risk on their own, or how to teach their children how to appraise risk. We have become a nation of children relying on our nanny government for protection. We don't even inspect the food we eat. We rely on the government meat inspectors to inspect 300 million servings of meat each day!

I have a friend who is in the mortgage brokerage business. He said there was fraud and non compliance on the part of lenders recently. I asked him why we have not seen one news story of prosecutions by the State for this banking fraud. The State is charged with protecting us from fraud. If fraud was committed then the State failed again to do its duty. It would be easy for the Federal Attorney Generals to get indictments on RICO charges for any banking fraud.

The State spends too much time and resources prosecuting victimless crimes, like using drugs and paying for sex. The government spends time holding hearings on steroid use by millionaire baseball players.

This from The Detroit News, Nov 28, 2007, "Attorney General Mike Cox, who has won nationwide notoriety for locking up parents behind in their child support payments, has yet to file a single criminal complaint against any mortgage broker or lending entity". http://tinyurl.com/26ymqk

And of course the state and local governments want their property taxes, so the Fed is going to require money set asides for property taxes on mortgage loans. The government mob looks out for each other.

One wonders how the United States prospered and grew so much before the FDR era of big government began.

The Fed wants to protect the borrowers. "We have an obligation to prevent fraud and abusive lending," the Fed chairman, Ben Bernanke,said earlier this year. No mention of the 12 years of "free"government education in the government schools. Didn't the government have an obligation to teach one how to read a contract?

I was a loan shark in my army days on Okinawa. I loaned money at high interest rates. Most people who borrow money at high rates do so for vices; liquor, drugs, gambling, and women. Those who want to prohibit vices think the desire for vices, and the vices, will go away if there are no funds available for the vices.
The money I loaned was between me and other young soldiers. They approached me for loans. I did not solicit their business. It was a voluntary verbal contract. I took the risk with the hope of a reward. The borrowers took the money in the hope of having more pleasure than pain. They spent the money on booze and whores. The money helped the local bar owners and whores. Some of the whores gave some of the money to their Papa Sans and Mama Sans. The interest I earned went towards my commercial pilot's license and a used car.

For some reason there are those who call me a predator and think I should be controlled. I was just a naive 18-19 year old who was trying to improve my life. Now I feel so guilty about being an "abusive" lender.

Charles Tolleson

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Fed taking on abusive lending practices By JEANNINE AVERSA, AP Economics

People taking out home mortgages may gain new protections soon against shady lending practices as the Federal Reserve seeks to back even the riskiest borrowers, already hit hardest by the housing and credit crunches.
Rules expected to be proposed Tuesday would apply to loans made by all types of lenders, including banks and brokers. The plan from the Fed,which has regulatory powers over the nation's financial system, could be finalized next year. The effective date would be known then.
The Fed is considering:

_barring lenders from penalizing sub prime borrowers - those with spotty credit or low incomes - who pay their loans off early.

_forcing lenders to make sure that borrowers, especially subprime borrowers, set aside money to pay for taxes and insurance.

_restricting loans that do not require proof of a borrower's income.

_examining lenders' failure, in some cases, to consider a borrower's ability to repay a home loan.

_improving financial disclosure so people better understand the terms and conditions of their mortgages and get this information when it is most useful.
_curtailing abuses in mortgage advertising.

On the Net:
Federal Reserve: http://www.federalreserve.gov/