The Mortgage Industry Fights for Its Right to Party

Posted by Howie Klein, Down With Tyranny! at 12:11 PM on April 28, 2008.

I went to a lovely party this weekend. And there were so many smart people there. Two who I was talking with-- both health care experts-- were absolutely positive than no matter who was elected president, there was absolutely no chance that there would be any transformational change in the way the people of this country receive health care. Gee, I thought that was part of the reason we were electing Democrats in a big way this year. But what do I know?

Today's NY Times has a story in the Business Section that probably belongs on page one. It explains why some things get done and why some things don't. It's only trying to talk about the mortgage industry. But the health care industry is much, much worse. Stephen Labaton, who has decided-- or was assigned-- to tackle the issue begins by mentioning that the mortgage industry is fighting back-- intensively-- against threats of regulation. Societies regulate industry when industry's greed gets out of control and threatens the well being of society. Despite Republicans, meat packing plants had to be regulated because... well, people were dying. The "free market" wasn't quite righting the wrongs fast enough. How many more families need to lose their homes before people start dragging mortgage bank executives out and hanging them from lamp posts? Do you think a jury would find anyone guilty? Not around here.

As the Federal Reserve completes work on rules to root out abuses by lenders, its plan has run into a buzz saw of criticism from bankers, mortgage brokers and other parts of the housing industry. One common industry criticism is that at a time of tight credit, tighter rules could make many mortgages more expensive by creating more paperwork and potentially exposing lenders to more lawsuits.

To the chagrin of consumer groups that have complained that the proposed rules are not strong enough, the industry’s criticism has already prompted the Fed to consider narrowing the scope of the plan so it applies to fewer loans.

The debate over new mortgage standards comes in response to a severe crisis in the housing and financial markets that many economists trace back to overly loose credit and abusive loans. Those practices, combined with low interest rates, led to inflated market values that have declined rapidly in recent months as investors have begun to lose confidence in the financial instruments tied to those loans.

Congress is usually easy to buy off-- less so under Democrats, but... well, still not that hard. A conservative coalition of virtually all Republicans, the quasi-Republican Blue Dogs and the insidious Rahm Emanuel Caucus can always be counted on to thwart the will of the working and middle class... as long as their members are well greased by their friends from K Street.

In 2006 the finance, insurance and real estate industries donated a total of $258,824,573 to candidates for office, most of it to Republicans and reactionary Democrats. So far this year-- and we're not even halfway done-- these public-minded industrialists have already given $209,078,445, an amount estimated to reach around $750,000,000 before November. Isn't that special? 54% has gone to Democrats, although much of it to very conservative Democrats who work closely with the GOP to push the agendas of these paymasters. Not counting presidential candidates, all of whom got huge amounts (Hillary the most by far-- $17,060,270), the biggest congressional benefactors of this largess were Joe Biden, Mitch McConnell, Norm Coleman, John Cornyn, Richard Durbin, and Max Baucus, all of whom-- with the exception of Durbin-- can be counted on to always put the agenda of business interests ahead of the interests of their constituents and of American families. The biggest recipient of these legalized bribes through her own PAC is notorious Blue Dog villain Melissa Bean among Democrats and Mitch McConnell among Republicans. Other big players in tamping down the idea of effective, let alone transformative, legislation in this area who take massive legalized bribes through their PACs are Rahm Emanuel, Norm Coleman, Susan Collins, Eric Cantor, John Boehner, John Sununu, and Steny Hoyer, each of whom builds his own power base inside Congress by doling out the cash to other members who... vote "right." [Note: many of this industry's favorite bribe recipients from 2006 have left or have announced they are leaving Congress including defeated Republicans Rick Santorum ($676,095), Sue Kelly ($459,631), James Talent ($457,235), Mike DeWine ($431,086), Mark Kennedy ($422,966), and George "Macacawitz" Allen ($400,936), as well as retiring Republicans Deborah Pryce ($793,128), Richard Baker ($567,157), Denny Hastert ($461,000), Jim McCrery ($437,500), and Tom Reynolds ($421,760). Lucky they fond so many Blue Dogs willing to sell out their constituents or what ever would have happened to all that money!

It's unlikely that Congress will act this year and the weak, laughable "plan presented by the Fed was proposed by its chairman, Ben S. Bernanke, and Randall S. Kroszner, a former White House economist in the Bush administration who is now a Fed governor and leads the Fed’s consumer and community affairs committee."

The plan would not cover existing mortgages but would apply only to new ones. It would force mortgage companies to show that customers can realistically afford their mortgages. It would require lenders to disclose the hidden fees often rolled into interest payments. And it would prohibit certain types of advertising considered misleading.

The Fed is expected to issue final rules this summer.

Earlier this month, as the comment period was about to close, the Fed was deluged with more than 5,000 comments, mostly from lenders who said the proposals could affect loans that have not presented problems. Some bankers and brokers also said the rules would discourage them from lending to some creditworthy borrowers.

The plan was criticized in separate filings by three of the industry’s most influential trade groups-- the American Bankers Association, the Mortgage Bankers Association and the Independent Community Bankers of America. More modest concerns about some of the provisions were also raised by the National Association of Home Builders and the National Association of Realtors.

...Some economists and housing experts say the Fed’s lax oversight helped enable lending companies to reap enormous profits by providing millions of unsuitable and abusive loans to homeowners who often did not fully understand the terms or appreciate their risk... [and] consumer groups say that the proposed rules are already weak and that efforts to further weaken them would render them all but useless.

And that's the idea. In fact, that's why this industry is willing to offer legislators close to a billion dollars in bribes this year.

“The Fed has accurately diagnosed that this is a brain tumor and responded by prescribing an aspirin,” said Kathleen E. Keest, a former state regulator who is now a senior policy counsel at the Center for Responsible Lending, a group supporting home ownership. “In the industry, there is a fair amount of denial. They just don’t get it. There is a calamity within the industry, and they don’t have a new script yet, so they rely on the old script, which is that regulation will raise costs.”

But, she went on, “What we now see is that the unintended consequences of deregulation are worse. Their line is that regulation will cut back access to credit. That’s been their line ever since the small loan laws were adopted in the early 1900s.”

At the same time, letters urging the Fed to further tighten the rules were sent by Sheila C. Bair, the Republican head of the Federal Deposit Insurance Corporation, as well as senior members of the House Financial Services Committee.

In her letter, Ms. Bair, whose agency regulates many banks, urged the Fed to apply the proposed restrictions to loans that are three percentage points or higher than equivalent Treasuries. To prevent lenders from evading the limit by creatively structuring the loan and fees, she also suggested that the Fed impose the tighter restrictions if the loan fees exceeded a dollar amount.

Of course if you listen to McCain, you just get the idea that a bunch of irresponsible home buyers were gaming the system and show get second jobs and stop taking so many vacations and pay off the banks.