Monday, December 1, 2008

No one could have forseen this mortgage crisis

You know, I probably should have my sense of surprise over the Bush Administration dulled by now. How many times can I go "Really.........really?" before I just am no longer shocked by the depth and breadth of their hackneyed stewardship of the country. The latest? Well, it turns out they were busy weakening mortgage and lending laws in the face of an economic collapse and ignoring regulations that could have at least mitigated the total free fall we seem to be in now.
The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying _ along with assurances from banks that the troubled mortgages were OK _ regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.
Among the good ideas they tossed into the scrap heap:
  • Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
  • Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
  • Regulators proposed a cap on risky mortgages so a string of defaults wouldn't be crippling.
  • Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
  • Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.
Christ that sounds horrifically prescient. Read the full article if you want to see the whole swath of quotes from a year beforehand about the consternations on how these regulations impede the open market and the free market and industry whinging. They sure do think those regulations are good ideas now, which is nice to know. All it took was trillions of bailout dollars and economic collapse.

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