Background and Options for Our Housing Crisis

 

For What It’s Worth….    main

Here are some compromise solutions that Congress is ignoring.  Obviously, congressional Republicans are resisting any solution that the administration might claim credit for during the next election cycle.  Regardless, here are some ideas that we can push for.

Net worth of our national community and employment are major issues but in large measure dependent upon a clear and rational resolution of the housing crisis.   A careful examination of our housing crisis options is clearly in order.

Here are a few bed-rock facts that must be included in any housing crisis discussion.

1.  The housing bubble and subsequent collapse has cost Americans trillions of dollars in equity and net worth.

2.  Underwater mortgage to home values are preventing home owners from refinancing their homes or moving to areas where jobs are available.

3.  Congress is totally at fault for allowing this crisis to evolve. They were warned by the FBI as far back as 2004 and earlier that the level of fraud in sub-prime loans could bring down the nation's financial system.  And our national leadership? They chose  to ignore the warnings in favor of protecting big money and to continue the "prosperity" even though it was a house of cards.  This is a perfect example of "kicking the can down the road."
     A. Pres. Bush defends the sub-prime program -- Video
     B. Obama supports sub-prime (2007), W/ History of Sub-Prime -- Video

4.  Various FBI reports indicate that more that 50% of Fraud involved application fraud of sub-prime application fraud since 2004 involved predatory lending and/or application fraud. FBI study revealed 30% to 70% application fraud.

5.  Additional FBI reports indicate that approximately 47% of sub-prime applications inflated the applicant's income by 40% or more.

6.  Congress and the courts have done little or nothing to prosecute those who have committed fraud against the American public. The FBI has selected to not prosecute borrowers who have committed fraud!

7.  Culpability needs to be shared through the entire system; Applicants, Appraisers, Loan processors and Banks.

7.  So, how do things stand now?  The construction industry is, of course, decimated! Unemployed home owners continue to loose their homes.  Home equity intended to provide educational opportunities for family members has been washed away. Hopes for retirement with dignity has evaporated for millions.  Congress is doing little to address the damage that they have cause.

Discussion:
     An earlier attempt to help homeowners that were underwater only drew about 17% of outstanding borrowers. It was considered to have been ineffective.  Well, considering that about 80% of sub-prime barrowers involved application irregularities, that 17%  of home owners actually represents about 85% of the honest barrowers!  Not all that bad!
     There many Internet sources confirming the government's failure to head off this crisis.  We are listing them separately on the sidebar.
     Recent proposals by President Obama to rescue underwater home owners has many restrictions and may likely fall short as did the above mentioned earlier attempt.  None of these programs address the real problems that thousands of persons have gamed the system with impunity. 
     It is this writer's opinion that all persons who defrauded the citizens of this country should be charged with felony fraud and be forced to confront their damage to our economy.  This action should apply to anyone knowingly writing mortgage applications with fraudulent information and/or processing these loans as being sound and quality instruments.  This should include every Mom and Pop, broker, loan administrator and clerk that signed off that such loans applications had been verified.
     Regardless of whatever prosecutions that may occur we must face the aftermath now.  This week the Federal Reserve hinted that they may consider purchasing more sub-prime loans.  Not from the families in trouble but from the BANKS.  So far, the only real effort has been to protect the Assets of the very institutions making stupid loans and NOT to protect the people of this nation. 

 Summary:  This national disgrace must be brought to an end!  It is a national disgrace that Congress allowed and even enabled this crisis to happen.  It is a national disgrace that Congress has not owned up to their responsibility. It is our, the American public, disgrace that we have failed to demand effective action by our government to undo the damage.   Below is a set of ideas not previously mentioned in all the dialogue back and forth regarding this national scandal.  While it may sound complicated at first, it isn't really - just read it through.

Suggestions to Remedy the Housing Crisis: 
1. 
Banks and financial institutions must be required to accept late payments and then stop foreclosure process.  There have been all too many cases where a homeowner falls a month or two late after years of staying current and the bank refuses to accept any further payment and continues to foreclose.

2.  Prosecute all persons and financial institutions having committed significant fraud against the American people. The message must be loud and clear that fraud and gaming of the system will not be tolerated.

3.  Select at random cases among the worst 40% and send notices to all parties to appear at a given time and date before an adjudicator (need not be a judge) and that all parties must bring all information regarding income, etc.  Failure to appear would result in a felony arrest warrant for any "no show."

4.  If the facts indicate any reasonable level of fraud the involved persons may plead "no contest" and be given a minimum sentence.  They would, however, have it on their record of felony fraud.

5. Now regarding underwater homeowners - before any further foreclosure would be permitted all involved persons would be given a mandatory appointment time to appear before an adjudicator.  That adjudicator would then determine what level of mortgage payments the homeowner could handle at 25% of their income. 

6.  The government adjudicator would then amend the mortgage agreement to reflect a loan principle that the homeowners could handle on a 30 year fixed mortgage at 5% interest.  This new mortgage would be assumable to new owners should the house be sold. (Older VA and FHA loans used to be assumable.) 

7.  If all parties agree, the government would pay down the loan principle to the revised amount and then take out a durable lien on the property for the amount of the write down. An official appraisal of value for that lower amount would be given to the homeowner to file for any real estate tax reduction.

8.  The new government loan would be free of interest and principle payments for five years.  Starting with the sixth year the government lien would require interest only payments for the next five years at the same interest rate the government was receiving for 10-year bonds.  Starting with the 11th year both interest and principle payments would be required with a fixed interest rate equal to what the government was receiving for 30 year bonds at that time. The government loan would also be assignable to any future owners with the same conditions.

9.  Should the homeowner sell the home at an appreciated price the capital gains would be split equally between the government loan principle and the homeowner's equity.

10.  Should the home be sold for an amount less than the total loan values the government would have a permanent or durable interest on the property which any new purchaser would need to satisfy before getting a clean title.

11. If the current loan holders object, the government could seize the property under eminent domain and directly refinance the loan with the homeowner as described above.

12. Finally, This arrangement would not significantly increase the government debt because the government would be swapping one assed (money) for another asses (real estate).  Lenders would get back loan principle that is now at risk.  Homeowners would be more able to sell and relocate to economically better regions as the financing for their homes would already be in place for any "worthy" borrower.  By delaying interest and principle payments homeowners would have a far better chance of participating in the economy by having more disposable income. 

Beneath all the political verbiage there are significant, ignored facts and considerations that we need to be aware of.  And, this is what Fogcutters is all about

Fogcutters.net - Finding Where Truth Hides

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Searching for solutions avoided by politicians and activists!

Millions of families have faithfully paid their mortgages over the years.  Now the dream of owning one's own home is fading quickly. And now millions are being hurt by those trying to "game" the system with impunity.

Fraud & Abuses have cost Americans hundreds millions of dollars.  Congress has failed to crack down on this serious fraud.

P.S. So why hasn't Congress already cracked down on fraud? Remember "Past is Prologue."

____ More Sources ____

FBI 2008 Report

FBI 2009 Report

Congressional Testimony by FBI in Oct. 2004
"80 percent of all reported fraud losses involve collaboration or collusion by industry insiders.

Who's to Blame? This Daily Finance editorial writer blasts the banks but takes homeowners off the hook.

Two Documents Everyone Should Read -
From the Huffington Post, 2009 -
Fitch Ratings, The Impact of Poor Underwriting Practices

Committee on Banking and Financial Services, Testimony, May 2000.

2007 - Up to 70% fraud -

5 essential truths missing from financial crisis report

Financial Crisis Inquiry Commission, - Crisis was Avoidable Also See.

Financial Crisis Inquiry Commission - Releases Report on the Causes of the Financial Crisis.

 

 

 

Side Note from Fogcutters:
We realize that a great deal of information has been presented here.  More that most persons want to know.  These links are just a small portion of the many sources that we have reviewed and thus we have put them out there for those who are uncertain just how deeply our political leaders chose to deny the facts.