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Location: St. Louis, Missouri, United States

Saturday, February 11, 2012

Mortgage Standards to Drop; A Triumph for Community Organizer Economics

Timothy Birdnow

Here we go again!

Just in time for the presidential elections, good economic news on the mortgage front; banks are going to be lending more, and mortgage standards are dropping!

From the article in DS News:

"Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit.


Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

End excerpts.

What, you may ask, is the cause of this rapturous change of heart by the bankers? Is it a sign the economy is improving?


This is described in this article:

"The settlement will provide as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government. It’s the largest multistate settlement since the Tobacco Settlement in 1998."

End excerpt.

For what?

"The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct. Both of these practices violate the law. The settlement provides benefits to borrowers whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service."

End excerpt.

Now, in a normal economy, such a settlement would have a chilling effect, forcing banks to TIGHTEN their standards rather than loosening them. Yet we are to believe that those same standards are in the process of loosening.

(By the way, notice that payments are going to government as well as any aggrieved parties.)

But here we have a catastrophic settlement and a loosening of standards at the same time.

And then there's this:

The NAACP blames mortgage lenders for "steering minorities into bad loans" when in fact the mortgage lenders would never have made such loans to begin with. They did so only because of pressure from the United States government. Now the NAACP is launching a massive lawsuit to bilk the banks out of millions of dollars for "predatory lending" and making bad loans to people who should never have gotten loans.

What is happening here is obvious; the Obama Administration and their associated NGO's (ACORN, the Rainbow Coalition, the NAACP, etc.) are engaged in racketeering, forcing the banks to ease up on foreclosures and make more loans or meet with an unfortunatel accident. It will work, too, at least for the moment as word of "good news" is trumpeted by the Obama and by an eager media hell-bent on promoting any "success" for this Administration. This is the old "we can do this one of two ways - the easy way or the hard way" and the banks are given no choice. Fine for now, but it will not just stall any recovery but leave us in worse shape than before.

The Federal Reserve has skewed the mortgage market for decades with ridiculously low interest rates, rates that make it hard for lenders to make money. Safer to shelter the cash in something secure than to lend it to an unpredictable homebuyer, a buyer who may wind up out of work because of a stagnant economy. And lenders are getting dragged into court by Il Duce and his Flying Circuit Courts for making loans to unpredictable people who were in danger of being unemployed, loans that the Deuce and his people at ACORN demanded be made. Any bank that makes loans to less than stellar applicants at this juncture would be criminally irresponsible, yet they will have no choice as legal pressure forces them to do it.

We will be right back in the same boat in a year.

Governments cannot simply command people to produce. The Soviets learned that the hard way. Despite being blessed with some of the best agricultural land in the world (in the Ukraine) the Soviets routinely had to purchase grain from America on credit. Their command economy produced nothing but chafe.

So did the South's during the Civil War; a slave economy is horribly inefficient because the slaves have no reason to work hard. As a result the Union had all the food, all the guns, all the equipment.

Now government is simply issuing commands to the real estate industry "thou shalt give good mortgages" and expecting this to somehow translate to real world prosperity. It's the illusion of power, the delusion held by those on the Left that all power over the real world can be held by government and the enlightened few, and that what they dream can be made reality by the Will. As it says in the Bible "fear of the Lord is the beginning of all wisdom" and an appreciation of the simple fact that there are real forces at work in a free market that must be ridden out rather than compelled is the beginning of economic wisdom. But nobody ever accused Liberals of wisdom; intelligence, maybe, but not wisdom. Progressives are the posterboys for the dictionary definition of Sophomore (wise fool).

So the Administration seeks to compel what it cannot savvy, coercing the mortgage industry to good health. Much like a doctor who beats his patient for not responding to treatment, the Obamabots will storm the ramparts with activists and lawyers, journalists and union thugs, to force the ailing mortgage industry to recover or else! It's community activism economics.

There is an old story about a farmer who hatches up a scheme to feed his horse less. He notices nothing happens, and the horse continues to plow as before, so he cuts the feed rations again. Over and over he cuts rations, and the horse become emaciated, ribs prominent and teeth falling out, but the brave little beast continues to pull that plow. Eventually the farmer stops feeding the horse all together, and the wretched animal collapses. The farmer then beats it unmercifully. The end result? It dies. The farmer, enraged, screams at the corpse (yes, Mr. President, it's pronounced with a p in it) "you ungrateful beast! I taught you how to work without food and this is how you repay me!"

Yeah; it's kind of like that!

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