Two Headed Answer on Mortgage Regulation...

Readers, if there are any... If you believe a human reads the letters to a senator check out the computer reply to my tongue-in-cheek mortgage letter. And read it real close... Tell me he doesn't say what progressives and conservatives want to hear.

Dear Mr. Rodda:

Thank you for contacting me about regulatory reform to the mortgage industry.

I support efforts to better regulate the mortgage industry, as I believe the current housing crisis stems from a lack of regulation on an industry that ran amok. From predatory lenders to land speculators to questionable appraisal practices and risky investments by Wall Street investment banks, we need to address all aspects of this crisis.

But I understand concerns about the impact of new regulation on the housing market. We must guard against excessive regulation, while providing the necessary measures to stabilize the market. I am open to new ideas that protect consumers, promote high standards in business, and discourage companies from acting in bad faith.

Thank you for sharing your thoughts. I'll keep your concerns in mind as we continue to work on legislation aimed at curbing foreclosures, cracking down on predatory lending, and regulating the mortgage industry. Please don't hesitate to contact me in the future.

Sincerely,
Senator Bill Nelson

And my reply...

Senator,

Allow me...

The term "subprime" refers to the credit characteristics of individual borrowers. Subprime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories. Subprime loans are loans to borrowers displaying one or more of these characteristics at the time of origination or purchase. Such loans have a higher risk of default than loans to prime borrowers. Generally, subprime borrowers will display a range of credit risk characteristics that may include one or more of the following:

•Two or more 30-day delinquencies in the last 12 months, or one or more 60-day delinquencies in the last 24 months;

•Judgment, foreclosure, repossession, or charge-off in the prior 24 months;

•Bankruptcy in the last 5 years;

•Relatively high default probability as evidenced by, for example, a credit bureau risk score (FICO) of 660 or below (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood; and/or

•Debt service-to-income ratio of 50% or greater, or otherwise limited ability to cover family living expenses after deducting total monthly debt-service requirements from monthly income. [1]

Senator, would you lend YOUR money to someone in this category???

Or how about...

In 1982, Congress passed the Alternative Mortgage Transactions Parity Act (AMTPA), (AMTPA also stands for "Another Mortgage for Tax Paying Americans"-my remark), which allowed non-federally chartered housing creditors to write adjustable-rate mortgages. Among the new mortgage loan types created and gaining in popularity in the early 1980s were adjustable-rate, option adjustable-rate, balloon-payment and interest-only mortgages. These new loan types are credited with replacing the long standing practice of banks making conventional fixed-rate, amortizing mortgages (which worked quite well-my remark). Among the criticisms of banking industry deregulation that contributed to the savings and loan crisis was that Congress failed to enact regulations that would have prevented exploitations by these loan types. Subsequent widespread abuses of predatory lending occurred with the use of adjustable-rate mortgages. Approximately 80% of subprime mortgages are adjustable-rate mortgages.[2]

Tell me again, who caused this???

Or how about...

In 1995, the GSEs like Fannie Mae began receiving government tax incentives for purchasing mortgage backed securities which included loans to low income borrowers. Thus began the involvement of the Fannie Mae and Freddie Mac with the subprime market.[3] In 1996, HUD (Gee, a government agency-my remark) set a goal for Fannie Mae and Freddie Mac that at least 42% of the mortgages they purchase be issued to borrowers whose household income was below the median in their area. This target was increased to 50% in 2000 and 52% in 2005.[4] From 2002 to 2006, as the U.S. subprime market grew 292% over previous years, Fannie Mae and Freddie Mac combined purchases of subprime securities rose from $38 billion to around $175 billion per year before dropping to $90 billion per year, which included $350 billion of Alt-A securities. Fannie Mae had stopped buying Alt-A products in the early 1990s because of the high risk of default. By 2008, the Fannie Mae and Freddie Mac owned, either directly or through mortgage pools they sponsored, $5.1 trillion in residential mortgages, about half the total U.S. mortgage market.[5] The GSE have always been highly leveraged, their net worth as of 30 June 2008 being a mere US$114 billion.[6] (Wow, 114 billion covering over 5 trillion in debt, that would be about 2%. Not many traditional banks would let the average borrower get away with that-my remark.) When concerns arose in September 2008 regarding the ability of the GSE to make good on their guarantees, the Federal government was forced to place the companies into a conservatorship, effectively nationalizing them at the taxpayers' expense.[7]

So tell me again, Senator!! Who caused the problem???

In closing, I have been "schooled" by personnel in your office regarding government spending on several occasions so the above is a return of the favor. In your endeavor to provide mortgage backing to those who are less than qualified you progressives have caused the financial meltdown of our economy. You forced lenders to make loans with minimal or no regard to their ability to repay. Then you allowed the lenders to sell off the mortgage as a security which freed up the same lender money to use again. This cycle continued until, well, you know the end. Senator, you were wrong, you are wrong, and come 2012 you and the teleprompter reader in the White House will be gone and we, the taxpayers, will be left with the mess.

With the respect due your Office,
Edward Rodda

[1]http://www.fdic.gov/news/news/press/2001/pr0901a.html

[2]Jon Birger (Published: January 31, 2008). "How Congress helped create the subprime mess". CNNMoney.com. http://money.cnn.com/2008/01/30/real_estate/congress_subprime.fortune/.

[3]Leonnig, Carol D. (June 10, 2008). "How HUD Mortgage Policy Fed The Crisis". Washington Post. http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html.

[4]http://online.wsj.com/article/SB122298982558700341.html

[5]http://www.federalreserve.gov/releases/z1/Current/z1r-4.pdf, Table L.124, line 16; L.125, line 2.

[6]http://www.federalreserve.gov/releases/z1/Current/z1r-4.pdf,Table L.124, line 1 - line 21

[7]All taken from: http://en.wikipedia.org/wiki/Subprime_mortgage_crisis