Opinions and Letters

Mortgage mess blame game

As the housing crisis and mortgage mess move off the front pages, some nagging questions remain. Many of those questions revolve around how so many smart people – not the homebuyers, but Wall Streeters – could have been so dumb or blinded by greed to the eventual results of what they were doing. I wonder how they can complain now that they’re losing money.

Here are a few of my questions:

Alan Greenspan has been publicly lamenting the fact that he’s being blamed for the mortgage mess. That’s the same Greenspan that flooded the credit markets with liquidity and pushed rates down. It’s the same Fed chairman who acted as cheerleader for the refinancing boom that fueled the economy, and his legacy of “growth.”

In a Feb. 23, 2004, speech to the credit industry, Greenspan actually endorsed adjustable rate mortgages, noting that while “American homeowners clearly like the certainty of fixed mortgage payments . . . American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”

And in the same speech: “The ability of lending institutions to manage the risks associated with mortgages that have high loan-to-value ratios seems to have improved markedly over the past decade.” No wonder he’s surprised!

If we can’t pin the blame on Alan, or the bankers, or the bank regulators, or the investment bankers or the rating agencies, why can’t we go back to the start and find the individual mortgage brokers who initially made the worthless loans?

That’s not an idle question. The financial institutions seem quite able to find the initial borrowers when it comes time to collect or foreclose. Surely the banks or servicers have the documentation from the initial loan, noting the names and addresses of the mortgage brokers who talked families into these great adjustable rate deals, and collected $1,000 per deal. Surely someone has considered tracking them down on their yachts – and charging them as individuals with fraud.

(Let me make it clear that I’m only referring to those jerks who made loans to people who clearly had no income to make the monthly payments once the initial, low rates wore off. I don’t see how we could get their bosses – now departing with big severance checks – indicted as co-conspirators.)

What happened to Private Mortgage Insurance? Lenders used to require this dreaded extra payment, typically one-half of 1 percent of the loan amount, to be paid by borrowers who had less than 20 percent equity.

This insurance was there to protect the lender from default, not to protect the borrower from loss. It was required for loans sold to Fannie Mae and Freddie Mac. The website of the Federal Reserve Bank of San Francisco still posts as an explanation for PMI:
“PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment.”

Since PMI was designed to protect the lenders, surely those insurance policies should mitigate the banks’ losses on the loans that went bad. Except that most of those loans didn’t have PMI.
In their eagerness to make and securitize loans, the banks devised ways of splitting a large mortgage into separate, smaller “piggyback” loans, and packaging them as securities instead of selling them to the housing agencies – avoiding the PMI requirement. Those same banks are complaining about losses?
Oh, and I have one last question. This one is directed at property tax assessors: You were quick to raise property taxes when home prices were soaring. Will you be equally quick to cut those property taxes in the midst of the huge price drops we’ve seen? Just wondering. And that’s The Savage Truth.


Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. Her column appears weekly via Creators Syndicate.

Race and the presidential election

Well, Barack Obama should be one happy guy. His big victory in North Carolina has pretty much locked up the Democratic presidential nomination. Now it is virtually impossible for Hillary Clinton to defeat him in the popular vote or in the elected delegate category.

Thus, Obama has the nomination won unless another Rev. Wright crawls into the picture. Spinners who talk about re-votes in Florida and Michigan are dreaming; that will not happen. The Obama campaign would be foolish to participate. They played by the Democratic Party’s rules and won. They’re not going to sanction do-overs.

Also, as Al Sharpton told me, any kind of superdelegate shenanigans will lead to massive demonstrations at the Democratic Convention in Denver, which would be disastrous for the party.
So Obama seems to be in.

Now comes the hard part, convincing Americans that he is the best choice for president without all hell breaking loose on the race front.

Thanks in part to Wright’s now immortal “the U.S. of KKK” remark, the race factor has emerged big-time in this election. If you don’t believe me, just look at the vote in North Carolina and Indiana.
About 60 percent of whites voted for Clinton, as opposed to an astounding 90 percent of African-Americans pulling the lever for Obama. And working-class whites went even bigger for Clinton. No question there is a race divide.

Accepting that, Obama has two basic problems in the race arena. First, militant blacks reinforce negativity on race issues, and these pinheads just keep popping up. In addition to Wright, Philadelphia preacher Derick Wilson wrote in the Philadelphia Daily News that Obama is a “house Negro” for not supporting Wright.
Of course, that is insane, and a responsible newspaper would not have printed the lunacy. But in this hyper-partisan country, race-baiters will find a forum, and every time stuff like that gets exposure, racial animus comes back.

Obama’s second dilemma is convincing skeptical white voters that he and his wife are sympathetic to their concerns. Let’s be honest, few white Americans would tolerate Wright for five minutes, much less 20 years. And Obama’s comments in San Francisco about blue collars seeking refuge in guns and church hurt him badly.
So, the senator must clarify his philosophy without belaboring the issue. Even with his verbal eloquence, that will not be easy.
I do not expect Obama or Sen. McCain to dwell on race, but surely some of their surrogates and the media will exploit the issue to the fullest. Any kind of perceived racial comment will be splashed all over the place.

That, of course, will be bad for the country and bad for the candidates. But it’s coming. No question.

Bill O’Reilly appears weekly via Creators Syndicate.