RE: [asa] Deregulation Madness

From: Dick Fischer <>
Date: Mon Dec 08 2008 - 12:00:40 EST

Hi Rich:
There is a lot of misunderstanding in the mortgage mess. I know, I was
a branch manager for a number of mortgage companies over the last ten
years and could see the problem looming when there was talk of the
"housing bubble" and prices of homes were still on the upswing. Sub
prime lenders began raising their interest rates in anticipation of
higher default rates, and just as they were tightening the screws they
began to get exactly what they were afraid of - more defaults.
Higher home prices cover a multitude of sins. Lower prices expose them.
From my limited vantage point I saw no "corporate greed," and "creative
financing" has gone on for over two decades. What I saw was competition
between individual mortgage lenders that pushed them into riskier loan
products and laxer guidelines in reaction to demand generated by
potential home buyers and loan officers.
If wholesale lender A required a 660 credit score for a 100% financed,
stated income loan, wholesale lender B would come out with a similar
loan product that only required a 640 credit score. Lender B could
capture not only that portion of the market but an increased market
share for all loan products as loan officers at the retail level would
follow the most aggressive lenders, giving them more loans in all
categories. So, pressure was always put on wholesale mortgage companies
to push the envelope.
When prices were going up, homeowners could get a loan where the
interest rate was low for two to three years and then would adjust to
market. Although the interest rate would adjust to a rate they knew
they could not afford to pay, when the time came they could either sell
the home for a profit or refinance to another loan product. First
mortgage loans and higher interest rate second mortgage loans could be
consolidated. Home buyers could see light at the end of the tunnel, but
only if prices continued to rise.
The deluge of defaults began with falling home prices. Many homeowners
began walking away from their homes and high mortgage payments when the
value of their home fell below the loan amount. And this continues
today on a downward spiral. Why pay for a mortgage when you can rent a
comparable home for a lower monthly payment? Home ownership has become
a millstone for millions of homeowners who bought during the last three
to four years with low or no down payments. And these are homeowners at
all levels from mansions to two-room shacks.
Furthermore, it isn't simply a matter of prime versus sub prime. It's
more a matter of low or no down payment requirements coupled with loans
that were subsidized in the beginning years. Option ARM loans became
popular that would allow only minimum monthly payments at the beginning
with the deferred part of the payment added to the loan amount each
month. It's a formula for financial suicide. Virtually 100% of these
loans are upside down today if the initial loan amount was 80% or
greater and almost all of them were.
Only price stabilization will help the housing market, and only lower
mortgage interest rates are going to do that coupled with improved
homebuyer confidence because lending guidelines and down payment
requirements have risen dramatically.
Dick Fischer, GPA president
Genesis Proclaimed Association
"Finding Harmony in Bible, Science and History" <>
-----Original Message-----
From: [] On
Behalf Of Rich Blinne
Sent: Monday, December 08, 2008 12:15 AM
Cc: Lynn Walker; George Murphy; Randy Isaac;
Subject: Re: [asa] Deregulation Madness was Re: Ben Stein on Sub Prime
Mortage Crisis...
On Dec 7, 2008, at 9:17 PM, John Walley wrote:
> But wouldn't the Community Reinvestment Act (CRA) be an example of
> gov't regulation rather than the dreaded deregulation? Wouldn't the
> sub-prime issue been avoided if not for this gov't interference in
> the market?
> Thanks
> John
No, because the CRA wasn't the problem. Roughly 85% of the loans were
prime and they were by statute issued only by commercial banks and
according to commercial bank rules. It was the unregulated bundling
and predatory loans by non-commercial banks and third parties such as
CountryWide that was the problem. One of the more noxious things about
this debate is the blaming of victims. It was not the poorer people
who bought modest homes that caused the problems. Rather, it was the
people who were financing the McMansions using "creative" financing.
Rich Blinne
Member ASA
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Received on Mon, 08 Dec 2008 12:00:40 -0500

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