Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Support Our Annual Fund Drive! We only shake you down once a year, but when we do we really mean it. It costs a lot to keep the site afloat, and our growing audience, well over TWO million unique viewers a month, eats up a lot of bandwidth — and bandwidth isn’t free. We aren’t supported by corporate donors, advertisers or big foundations. We survive solely on your support.
FacebookTwitterGoogle+RedditEmail

The Bankers vs. the People

by MIKE WHITNEY

Last Thursday, the Wall Street Journal ran an article titled “Burdened by Old Mortgages, Banks Are Slow to Lend Now“, in which, author Nick Timiraos said that the reason that housing has been so slow to recover is because Fannie and Freddie “have been forcing banks to take back an increasing number of loans that the banks made during the boom years.” According to Timiraos, the banks have “grown wary of making new loans” and “are ratcheting up credit and documentation standards for new mortgages.”

From the WSJ:

“Mortgage credit is tighter than it should be,” said Treasury Secretary Timothy Geithner at a Senate hearing in July. “And the main reason for that is because banks…feel much more vulnerable now to what people call ‘put-back.’ ”

This play-it-safe stance by banks threatens to undercut the Federal Reserve’s latest effort to push down mortgage rates by buying up mortgage-backed securities. Even if rates keep falling, many people will find it much harder to take advantage.”

Timiraos does have a point. Certainly housing and the overall economy would be doing better if credit was expanding at a brisker pace. But does that mean the banks should ease lending standards again like they did before the meltdown? And, does that mean the banks shouldn’t be held accountable for the bad loans they made? Timiraos seems to think so. Take a look:

“So far, Fannie and Freddie have asked banks to repurchase $66 billion in mortgages made between 2006 and 2008, according to an analysis of federal filings by Inside Mortgage Finance, an industry newsletter. The balance of outstanding demands from both companies at the end of July was up 37% from a year earlier. Most of these loans have defaulted, so banks face losses when they take them back.”

Is this the most convoluted argument you’ve ever heard? The author admits up-front that “Most of these loans have defaulted” which is a tacit admission that the underwriting was either shoddy or fraudulent, right? And, yet, he seems to think that someone else should stump-up the doe for the losses. In other words, John Q. Public.

Keep in mind, that taxpayers have already bailed out Fannie and Freddie to the tune of $142 billion, and that the agencies (GSEs) currently guarantee 95 percent of all mortgages, which is a massive subsidy for the banking industry. (The gov is giving the banks free insurance.)  But even that is not enough for the banks. They want more. They want taxpayers to pony-up for the losses on loans that were made to applicants who were never really creditworthy to begin with. Can you believe the arrogance? Here’s more from Timiraos:

“Loan officers say their job used to be fairly straightforward: Determine that a borrower could reasonably repay the loan. Today, they say the goal is to shield themselves from a put-back. This means asking borrowers for reams of documentation—tax returns, bank statements, pay stubs, and appraisals—in order to deliver loans that can’t be questioned.”

Boo hoo. Yes, Mr Timiraos, as unfair as it sounds, loan officers do have to do their jobs and check “tax returns, bank statements, pay stubs, and appraisals”. That’s how you figure out if someone has the means to repay the debt or not. It’s also how you avoid lending trillions of dollars to unqualified applicants and inflating behemoth credit bubbles that crush the economy.

“Put-backs” (making the banks repurchase the garbage mortgages they dumped on Fannie and Freddie) are not an attack on the banks. This isn’t a “Gotcha” operation. It’s merely a way of protecting the public’s interest by returning loans that exhibit “substantive underwriting and documentation deficiencies”. Isn’t that just a nice way of saying “fraud”? (If the gov was serious about this, they’d file criminal charges, which is the best way to make sure the same thing doesn’t happen again.)

And, another thing, if a bank feels like a “put-back” is unfair, there’s a process in place for appealing. So, everyone gets their day in court, if they so chose. In effect, Fannie and Freddie are saying, “Hey, Mr Bankster, I’ll gladly insure your dogshit mortgages for nothing provided you don’t rip me off.” As it turns out, that is too much to expect from the banks. They figure that if the government was stupid enough to guarantee their mortgages to begin with, then they should have to pay for the losses. That’s why they’ve dispatched their lobbyists to Capital Hill to twist arms in order to ease current regulations. Here’s an update on The Bankers vs the People via Reuters:

“Just four years after toxic U.S. mortgages brought the global financial system to its knees and triggered the deepest recession since the Great Depression, a U.S. housing regulator may be making it easier for banks to make bad loans without suffering losses.

The Federal Housing Finance Agency released a little-noticed rule last week that makes it harder for Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) – the government-owned companies that guarantee home loans made by banks – to hold lenders accountable when mortgages go bad.

Some experts said the new rules show that lessons of the housing crisis are already being forgotten, and could set up taxpayers for tens of billions of dollars of losses if the lending bubble re-inflates later in the credit cycle.

At issue is when Fannie Mae and Freddie Mac can press banks to make them whole when mortgages go bad.” (“Housing regulators loosen rules, but at what cost?”, Reuters)

So the banks win again. Looser regulations mean that Uncle Sam will get stuck with more of the red ink while the banks get off Scott-free. It also means that lenders can start cranking out more dodgy loans without fear of reprisal. Put the two together, and we’re back to Square 1, back to where we were before Lehman Brothers folded. Financial sector lobbyists have carried the day. They’ve increased the vulnerability of the system and put the economy on a glide-path to another spectacular crash. Of course that’s probably just fine by Timiraos, since the banks will be lending again.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

 

Clearance Sale of Vintage
CounterPunch T-Shirts!

We’ve marked down some of CounterPunch’s most popular t-shirts to only $8.00,including the CP shirt featuring Alexander Cockburn’s own scrawl.

 

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

More articles by:

2016 Fund Drive
Smart. Fierce. Uncompromised. Support CounterPunch Now!

  • cp-store
  • donate paypal

CounterPunch Magazine

minimag-edit

September 29, 2016
Robert Fisk
The Butcher of Qana: Shimon Peres Was No Peacemaker
James Rose
Politics in the Echo Chamber: How Trump Becomes President
Russell Mokhiber
The Corporate Vice Grip on the Presidential Debates
Daniel Kato
Rethinking the Race over Race: What Clinton Should do Now About ‘Super-Predators’
Peter Certo
Clinton’s Awkward Stumbles on Trade
Fran Shor
Demonizing the Green Party Vote
Rev. William Alberts
Trump’s Road Rage to the White House
Luke O'Brien
Because We Couldn’t Have Sanders, You’ll Get Trump
Michael J. Sainato
How the Payday Loan Industry is Obstructing Reform
Robert Fantina
You Can’t Have War Without Racism
Gregory Barrett
Bad Theater at the United Nations (Starring Kerry, Power, and Obama
James A Haught
The Long, Long Journey to Female Equality
Thomas Knapp
US Military Aid: Thai-ed to Torture
Jack Smith
Must They be Enemies? Russia, Putin and the US
Gilbert Mercier
Clinton vs Trump: Lesser of Two Evils or the Devil You Know
Tom H. Hastings
Manifesting the Worst Old Norms
George Ella Lyons
This Just in From Rancho Politico
September 28, 2016
Eric Draitser
Stop Trump! Stop Clinton!! Stop the Madness (and Let Me Get Off)!
Ted Rall
The Thrilla at Hofstra: How Trump Won the Debate
Robert Fisk
Cliché and Banality at the Debates: Trump and Clinton on the Middle East
Patrick Cockburn
Cracks in the Kingdom: Saudi Arabia Rocked by Financial Strains
Lowell Flanders
Donald Trump, Islamophobia and Immigrants
Shane Burley
Defining the Alt Right and the New American Fascism
Jan Oberg
Ukraine as the Border of NATO Expansion
Ramzy Baroud
Ban Ki-Moon’s Legacy in Palestine: Failure in Words and Deeds
David Swanson
How We Could End the Permanent War State
Sam Husseini
Debate Night’s Biggest Lie Was Told by Lester Holt
Laura Carlsen
Ayotzinapa’s Message to the World: Organize!
Binoy Kampmark
The Triumph of Momentum: Re-Electing Jeremy Corbyn
David Macaray
When the Saints Go Marching In
Seth Oelbaum
All Black Lives Will Never Matter for Clinton and Trump
Adam Parsons
Standing in Solidarity for a Humanity Without Borders
Cesar Chelala
The Trump Bubble
September 27, 2016
Louisa Willcox
The Tribal Fight for Nature: From the Grizzly to the Black Snake of the Dakota Pipeline
Paul Street
The Roots are in the System: Charlotte and Beyond
Jeffrey St. Clair
Idiot Winds at Hofstra: Notes on the Not-So-Great Debate
Mark Harris
Clinton, Trump, and the Death of Idealism
Mike Whitney
Putin Ups the Ante: Ceasefire Sabotage Triggers Major Offensive in Aleppo
Anthony DiMaggio
The Debates as Democratic Façade: Voter “Rationality” in American Elections
Binoy Kampmark
Punishing the Punished: the Torments of Chelsea Manning
Paul Buhle
Why “Snowden” is Important (or How Kafka Foresaw the Juggernaut State)
Jack Rasmus
Hillary’s Ghosts
Brian Cloughley
Billions Down the Afghan Drain
Lawrence Davidson
True Believers and the U.S. Election
Matt Peppe
Taking a Knee: Resisting Enforced Patriotism
FacebookTwitterGoogle+RedditEmail
[i]
[i]
[i]
[i]