Patterico's Pontifications

3/13/2014

The ObamaCare Approach Comes to Mortgages!

Filed under: General — Patterico @ 7:57 am

Call it ObamaMortgage.

And it’s bipartisan!

According to Robert Romano, the senior editor of Americans for Limited Government, lawmakers want to “create a new government entity” (yay!) to supervise the forced creation of a mortgage insurance fund that would supposedly replace the need for government bailouts (but keep reading, because it won’t). The mandatory insurance fund rises to 2.5 percent of outstanding loans after 10 years. As Romano notes, it will be borrowers who will ultimately have to pay this additional cost — and since those who put less than 20 percent down already pay mortgage insurance, the additional cost will inevitably fall on people who do put 20 percent down.

If insurers were to choose to create a risk pool, that would be one thing. But the reason this is going to be mandated is because the government still wants lenders to make mortgages available to sketchier applicants.

So, to sum it up: people who can’t really afford the mortgages will be subsidized by forcing people who can afford them to pay more.

Starting to see the resemblance to ObamaCare?

It’s also similar in that, while it is nominally intended to do away with bailouts, Romano notes that the bill actually guarantees bailouts — something that, with Fannie and Freddie, was always an implicit guarantee, but now will be explicit:

To wit, the bill states, “The full faith and credit of the United States is pledged to the payment of all amounts from the Mortgage Insurance Fund which may be required to be paid under any insurance provided under this title.”

So, how exactly will the bill protect taxpayers from losses? It sounds more like homeowners will pay for it first, and then if and when that doesn’t work, investors are given an explicit government guarantee — something Fannie and Freddie never had.

Indeed, a bill to do away with bailouts now guarantees them. Again: sounds like ObamaCare.

The difference here? This is bipartisan. And Obama supports it. Which means it is happening.

Continued government interference in the free market, with its attendant disastrous consequences, continues apace. And there is nothing you can do about it, citizen, except shut your mouth and take it.

57 Responses to “The ObamaCare Approach Comes to Mortgages!”

  1. Bipartisan ideas are generally awful.

    JD (eea907)

  2. Painted Jaguar (scowling) This doesn’t sound good.

    Painted Jaguar (a sockpuppet) (f9371b)

  3. The full faith and credit of the United States
    Painted Jaguar:
    (nothing, rolling around on and making funny noises)

    Painted Jaguar (a sockpuppet) (f9371b)

  4. Of course it’s bipartisan. Goldman Sachs donates to both parties. TARP on steroids and on the backs of responsible homebuyers.

    nk (dbc370)

  5. Did the Nikkei go up on this news, gary?

    nk (dbc370)

  6. There is no sector of the U.S. economy that Obama wants to leave unscathed from the touch of his centralized planning lunacy during his last three years in office. He ruined the healthcare sector; is putting businesses under an ever-heavier yoke of higher taxes, burdensome regulations and mandated wage increases, and, he would be going after IRA’s and 401(k) retirement accounts, if Obamacare hadn’t been such an unqualified disaster. As it is, he still is pushing the idiotic “myRA” idea, positing that opening an IRA account and making basic investment decisions with the help of a planning professional is beyond the ken of poor folks, and thus should be accomplished by the benevolent and sagacious government, instead.

    Guy Jones (df6cf0)

  7. Our esteemed host wrote:

    So, to sum it up: people who can’t really afford the mortgages will be subsidized by forcing people who can afford them to pay more.

    That kind of depends: President Obama wants the banks to loosen up on their credit requirements, but if that doesn’t happen, then your concern goes away. The problem is: blacks and Hispanics, in general, have poorer credit histories and reliable continuing income sources than whites.

    The real problem is the change in thinking behind mortgage lending. Before the crash, the house and property were considered to be the both necessary and sufficient collateral for the mortgage loan; if the buyer defaulted, the lender could still recover most of the loss through foreclosure and sale. Now the house itself is no longer sufficient collateral without a stronger credit history and continuing source of income. What this proposed fund is really supposed to do is make mortgage lending safe enough that the house, plus the insurance, are sufficient collateral. Thus, it becomes safer to lend to customers with poorer credit histories, and that addresses — in theory — the higher turn down rates for minority applicants. But even the lower-earning borrowers will still have to be able to pay the mortgage.

    As for the lenders, they’d (probably) love to see such a thing set up; it lowers their exposure to loss.

    The real losers would be people trying to sell their homes: if the costs of the mortgage increase, people will be able to qualify for lesser amounts, and that means a depressing effect on sale prices.

    The Dana whose mother was a mortgage banker (3e4784)

  8. Keep Uncle Sam out of my pockets! Some people aren’t good credit risks. Learn from the past or you will ensure failure.

    This effing guy (TFG) is an unmitigated disaster. Everything he and his cohorts in crime touch turns to excrement

    Colonel Haiku (c1bfa3)

  9. The full faith and credit of the United States … is not what it used to be.

    Patricia (be0117)

  10. He’s becoming a Paul Reiser routine.

    “I’m not saying it’s socialized medicine. I’m just saying, it’s socialized medicine.”

    The theft and slavery of communism, by any other name…

    CrustyB (5a646c)

  11. what could possibly go wrong with this?

    y’all are just racist H8rs…

    redc1c4 (abd49e)

  12. Elections have consequences.
    Or whatever.

    Elephant Stone (6a6f37)

  13. The government is not going to let the banking system collapse. Ever. You have to start from that fact, so the idea that “bailouts” are something optional in a crisis isn’t reasonable.

    Instead, you need to structure the system to make the threat of collapse minimal, and the bailout, if any, as palatable as possible to the public, and as unpalatable as possible to the lenders. I’d favor something that includes shooting the Boards of Directors, but that’s probably not going to fly.

    Kevin M (dbcba4)

  14. A preferable bailout system: the funds go to buy down most mortgages by, say, 10%. The money shores up the banks since it does end up there, but by reducing the overall mortgage burden, it also shores up the secondary markets which are the ones really in trouble. It’s a lot better to work on the short end of the lever than the long one; bailing out AIG by paying off the reinsurance bills was incredibly expensive do to the leverage multiples.

    Kevin M (dbcba4)

  15. *do due

    Kevin M (dbcba4)

  16. Dump your mortgages, pay off your debts. They haven’t mandated that everyone needs to have a mortgage…yet.

    DejectedHead (a094a6)

  17. Shades of Barney Fife Frank, Chris Dodd, and ACORN all over again.

    This is an extremely bad idea, and no amount of philosophizing about how it will ultimately shield taxpayers holds water.

    Read “Reckless Endangerment” by Pulitzer Prize winning investigative writer Gretchen Morgenson to get the foundational details behind the last mortgage crisis. Then check out the blog Living Lies (http://livinglies.wordpress.com/) about the inconceivably corrupt and lawless state of litigation surrounding foreclosures in the US.

    The tip of the iceberg includes:
    1. Many foreclosures are being pursued by entities which do not actually own the note and lack the right to the collateral due to the deed being separated from the note
    2. Lenders used the MERS tracking system in virtually all mortgage transactions in the past decade+. MERS separates the underlying mortgage deed from the note which is being secured – which destroys the enforceability of the security document (as determined by the US Supreme Court in the late 1800′s). After being digitally copied, the original deeds were destroyed – which led to foreclosing parties resorting to robosigning and forging borrower signatures when courts required the original documents to be presented in some foreclosure cases.
    3. Lenders which aggregated loans to securitize and sell to investors failed to properly follow the underlying steps which usually involved a REMIC trust with strict IRS requirements. In many cases the trusts funded by investors never received title to the loans they supposedly bought.
    4. The loan portfolios supposedly held in trust were insured by the likes of AIG. When loans went bad AIG paid the originator of the loans…not the investors’ trust.

    The list goes on. But the point is trillions of dollars in transactions were completed using processes that did not follow the law. Until recently the courts have sided almost exclusively with the foreclosing parties. Lately some state and federal court rulings have started tipping the scales in favor of the borrowers by simply requiring the foreclosing entity to show verifiable evidence of ownership of the note and the deed, then demonstrating their actual loss. (Previously the courts ignored the fact that once the AIG payment was received the loss was eliminated or reduced below what the foreclosing entity is demanding.) They are now allowing borrowers to have standing in challenging the foreclosing parties’ claim of ownership of the note and deed. (http://livinglies.wordpress.com/2014/02/27/glaski-court-refuses-to-depublish-decision-two-judges-recuse-themselves/)

    Recall that Chase just paid $15 billion to the feds as a partial mea culpa regarding some of its lending irregularities. Next to fall will be BofA which bought subprime lender Countrywide with its fraudulent lending practices.

    Bottom Line – the entire mortgage system is structurally corrupt and running outside centuries of contract law precedents. Unless that is addressed first the taxpayers will certainly become entangled in the inevitable losses and litigation and wind up footing the bill one way or another.

    in_awe (7c859a)

  18. Why can’t they just let the banks decide who is an acceptable risk to lend money to?

    JD (6347b4)

  19. Because on their own banks lend money expecting to be paid back, JD.

    elissa (5beb7b)

  20. “Why can’t they just let the banks decide who is an acceptable risk to lend money to?”

    Why? Because it severely limits the opportunities for graft and crony capitalism.

    PerfectSense (4d5c72)

  21. in this modern world
    up is down bad is good and
    They LIE to yo face

    Colonel Haiku (c1bfa3)

  22. fear home ownership
    has lost most of its cachet
    nation of renters

    Colonel Haiku (c1bfa3)

  23. “One of these days, Ma…”
    we’re all Jeeter Lester now
    “… I’m gonna plow field”

    Colonel Haiku (c1bfa3)

  24. get up get a job
    with help and grace from above
    yep… Tobacco Road

    Colonel Haiku (c1bfa3)

  25. yep just blow it up
    and start all ovah again
    Yeah, cuz it is home

    Colonel Haiku (c1bfa3)

  26. I shall now return the control of your screens…

    Colonel Haiku (c1bfa3)

  27. As far as I am concerned, HUD, Fannie Mae, and Freedie Mac were the primary drivers behind our 2008 economic collapse.

    JoyO (d0cbb4)

  28. As far as I am concerned, HUD, Fannie Mae, and Freedie Mac were the primary drivers behind our 2008 economic collapse. Yet, the Progressive Democrats have not passed any laws affecting them.

    JoyO (d0cbb4)

  29. Yes, JoyO. It almost feels like it might have been another planned prog redistribution of wealth scheme.

    elissa (5beb7b)

  30. It’s not people who can’t really afford the mortgages who will default.

    It’s people who paid too much for the house.

    They check the credit score. People with a good score generally want to pay. Therefore, if they have equity, they will sell the house and pay off the mortgage.

    On the other hand people who could afford may nevertheless default if they are underwater.

    What this kind of thing can do is allow prices to climb.

    The problem is when you get creative financing to keep the bubble going.

    Sammy Finkelman (d22d64)

  31. re: Dana (etc.) at #7:

    The real losers would be people trying to sell their homes: if the costs of the mortgage increase, people will be able to qualify for lesser amounts, and that means a depressing effect on sale prices

    That’s funny, I read this almost exactly backwards. Any ‘fund’ that reduces risk to the lenders and encourages a relaxation of credit requirements as a consequence, since their risk is more covered, tends to make people qualify easier for more, thus inflating the bubble. The extra ‘fees’ that get rolled into the fund for those who aren’t as risky (20% down) would be more than counteracted by the larger population of people who would like to put in less, and are just paying mortgage insurance premiums instead.

    rtrski (336865)

  32. 31.It’s not people who can’t really afford the mortgages who will default.

    It’s people who paid too much for the house.

    Interesting that you see a distinction between those 2 descriptions. I don’t. If you buy a house for a valuation that you can’t bear to see go underwater and still make payments…then you couldn’t afford the investment (mortgage), even if your monthly cash flow would allow you to keep making those payments. You shouldn’t have made that commitment.

    rtrski (336865)

  33. Repeat after me, Sammy… “nobody’s fault but mine”.

    Colonel Haiku (4f0257)

  34. It is hard not to think our elected officials are insane when they do the same thing over and over again thinking that this time around their programs will produce different results. I guess it does take an Einstein to figure that out.

    The key graph in the original post runs just three words: “And it’s bipartisan!” When I read it, my first thought was that Ted Cruz isn’t extreme enough, we need Rand Paul. Then I thought a bit more and realized it’s Ron Paul we need.

    ThOR (130453)

  35. …the government still wants lenders to make mortgages available to sketchier applicants.

    Apparently, those morons still haven’t learned the lessons of what precipitated the current depression…

    Blacque Jacques Shellacque (73b524)

  36. If insurers were to choose to create a risk pool, that would be one thing. But the reason this is going to be mandated is because the government still wants lenders to make mortgages available to sketchier applicants.

    Is it really mandated? It looks to me like you can give out an uninsured mortgage if you want to.

    James B. Shearer (878baf)

  37. Comment by Colonel Haiku (4f0257) — 3/13/2014 @ 4:08 pm

    You go, Colonel!

    But seriously, if you want Sammy to repeat it, you will need to get those words to appear in one of his “go to” sources. O.K., let’s name those sources.

    felipe (6100bc)

  38. The road to hell is paved with good intentions.

    The USA in the 21st century is getting awfully damn hot.

    Mark (d72f8d)

  39. OT, but big news in the Brett Kimberlin RICO suit: he confessed to forging a new document.

    Read here.

    Aaron "Worthing" Walker (23789b)

  40. “Blacks do live miserable in Southern cities. It can’t be denied. There’s a shameful list of awful cities and it hurts me to write it: Newark, Trenton, Camden, Detroit, Flint, Chicago, and Gary. Pretty much the entire South.”

    Colonel Haiku (4f0257)

  41. teh NitWit Bomber
    forging like he don’t know how
    Total Waste of Space

    Colonel Haiku (4f0257)

  42. TANSTAAFL, baby. Conservatives know it. “Progressives” pretend it ain’t so (but it is).

    Beldar (fa637a)

  43. They can insure mortgages every which way. They do that already. The reason for the collapse of 2007-2008 were many, but one of the main ones was that the INSURERS defaulted. After that it was just dominoes.

    Insurance does not work in a wave of failures, just like it doesn’t work for earthquakes or other widespread disasters. Insurers cannot cover existential risks. At that point you have one of two choices: government bailouts or “uh-oh”.

    If government had not bailed the banks out in 2008-9, every life insurance policy and every savings account and many corporations would have been worthless. “Uh-oh” isn’t a satisfactory answer.

    Having said that, I don’t think that the plan proposed will work much better — it’s still insurance and it is still insufficient. You need to make sure that the banks do not dare get silly about loans and derivatives. Getting back to my “shoot the boards of directors” suggestion.

    Kevin M (dbcba4)

  44. I absolutely can not see any reason this might not work out as suspected.

    Ag80 (eb6ffa)

  45. I’m comfortable with the ‘shoot the boards of directors’ approach.

    red (ac28a9)

  46. 5. No the Nikkei is crashing. I rather doubt this news has reached the ticker tho.

    We are, with regard to the yen, in a very curious chaotic attractor at the moment.

    People with money sell regardless of the bourse when the yen falls below 102 to the dollar and buy like mad when it peeks over the margin.

    Something to do with the carry trade, buy bonds in either dollars or yen given the respective bonds yields. Sell when the advantage sours and try to make a sweet buy elsewhere with the cash.

    Been like this for weeks now. Most bizarre. People aren’t just angling to make a buck today, but this hour, the next ten minutes, whatever.

    No wonder there are so many jumpers.

    gary gulrud (e2cef3)

  47. I’m sure its obvious to every one that isolates of such refined stupidity are an indication that things aren’t just totally out of hand, events are going to blow wide open any day now.

    Hard hats and rain ponchos if you got ‘em.

    gary gulrud (e2cef3)

  48. 46. I believe you’re going to get your chance.

    gary gulrud (e2cef3)

  49. The only way to escape the costs of Socialism are to be poor, except poverty is the largest cost of socialism, which Winston Churchill called a “system of shared misery”.

    askeptic (2bb434)

  50. 50. A thought worthy of followup. What happens in a socialist economy that cannot meet it’s significant payroll?

    gary gulrud (e2cef3)

  51. “The reason for the collapse of 2007-2008 were many, but one of the main ones was that the INSURERS defaulted.”

    Kevin M. – I had not heard this cause. Which insurers defaulted and when?

    daleyrocks (bf33e9)

  52. 51- Zimbabwe.

    askeptic (2bb434)

  53. “What happens in a socialist economy that cannot meet it’s significant payroll?”

    FIAT CURRENCY!!!!!!!!!!

    DOOM!

    Nor Luap

    daleyrocks (bf33e9)

  54. Daley–

    AIG was unable to honor its repurchase agreements, which were the main form of insuring the mortgage paper that had become the de facto international currency.

    IIRC, when Lehman fell, AIG had repurchase obligations all over the place and not enough capital to meet them. Yes, see here, or google “aig lehman”. The Feds poured hundreds of billions into AIG after the fact, to unleverage the system. In retrospect they should have bailed out Lehmann, then jailed some people.

    Kevin M (dbcba4)

  55. 55

    AIG was unable to honor its repurchase agreements, which were the main form of insuring the mortgage paper that had become the de facto international currency

    But AIG didn’t default because it was supported by the federal government (which eventually got all its money back).

    James B. Shearer (878baf)

  56. “AIG was unable to honor its repurchase agreements”

    Kevin M – That was September of 2008 and threatened to crash the system and was the reason for bailout of AIG. AIG had quadrupled its bets on the U.S. housing markets and could not meet collateral calls on various obligations. It had lent U.S. Government securities to buy mortgage backed securities for which there was no ready market and regulators prevented them from freely moving money around between insurance companies which had plenty of liquidity. But the issues related to AIG’s potential nonperformance occurred near the end of that 2007-2008 period and did not cause it.

    Similarly with ACA Capital which crash due to collateral posting issues on credit swaps at the end of 2007 caused by the disruption in mortgage securities and MBIA.

    You have the underlying sequence backwards. The decline underlying housing markets, including skyrocketing defaults, caused the nonperformance of few insurers, culminating in the bailout of AIG.

    daleyrocks (bf33e9)


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