Foreclosure Mess

Fannie and Freddie, which are now government-run entities, announced last week that they are suspending foreclosure sales until after the holidays. Read about it here, but let's paste in one little blurb:

"Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year," Freddie Mac Chief Executive David Moffett said in a statement. "Today's announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays."

A couple of comments.

The government couldn't clean up after Katrina, how does anyone expect it to be able to clean up an economic crisis so complex that it can't even be explained, let alone understood? Prediction: this will only prolong the misery both for homeowners and taxpayers.

Note the term "avoid". Government is much better at avoiding (and helping others to avoid) than it is at achieving. What's being avoided is the inevitable. Unfortunate as it is, this is the bursting of a bubble. Some people own homes that they never could and never will be able to afford. Others bought or borrowed at the top and now owe more that their home is worth. Putting the sale off until after the New Year is simply that--putting it off.

As I predicted, now that the government runs Fannie and Freddie, feelings are being introduced into the decision process. Freddie now is the the business of "provid[ing] . . . new measure[s] of certainty" to delinquent borrowers. This is to be expected bc. where there is government involvement, there is politics, and where there is politics, feelings often become more important than sound economics.

Finally, this policy will encourage others to stop making payments. After all, if you and your neighbor both are under water and he has stopped paying but gets to stay in his house, why should you pay? There's no consequence.

Who knows, maybe it's better for everyone if delinquent borrowers are allowed just to squat where they are for a while. The banks certainly don't want the properties and vacancies only add to the downward spiral of real estate values in any neighborhood. On the other hand, moving folks out who can't afford to be where they are, and moving them out as quickly as possible, may be more humane and will certainly bring this mortgage mess to a speedier conclusion.

Hey, that's what I said

In an IBD editorial this morn, Thomas Sowell agrees with my March '08 blog post: a leading cause of the subprime mortgage fiasco was the Community Reinvestment Act which pressured lenders to make loans they never would have made otherwise.

A short blurb:

It was not that many years ago when there was moral outrage ringing throughout the media because lenders were reluctant to lend in certain neighborhoods and because banks did not approve mortgage loan applications from blacks as often as they approved mortgage loan applications from whites.

All this was an opening salvo in a campaign to get Congress to pass laws forcing lenders to lend to people they would not otherwise lend to and in places where they would not otherwise put their money.

More Energy Policy Asininty

Talk about the chickens coming home to roost.

Jim McTague hits it right on the head when he chides our three presidential candidates for failing to stand up to electoral vote powerhouses Florida and California who have blocked exploration for off shore oil and natural gas.

We're way behind the curve here and now we're to be punished. And for what? So environmentalists can feel safe. So the ocean view from the Malibu hills is not sullied with ugly oil rigs. So some politicians can raise enviro-dollars and others can avoid ruffling feathers.

In the meantime, Granny Sixpack can't afford to fill the fuel oil tank and Joe Trucker is reduced to driving around the Mall in Washington honking his horn, looking like a dingbat. How short sighted.

I guess we'll see now how Florida's tourist industry can handle $200 a barrel oil. My guess is that many fewer folks will be driving down to see Mickey and South Beach.

Oil and U.S. involvement

An interesting question came to mind after reading an article entitled "Why Iraq Matters".

If Billary or Obie wins and our policy becomes one of unilateral withdrawal from Iraq, what will happen to the price of oil? My guess is that despite all the America bashing, The Market probably views our presence there now as a stabilizing influence. If we decide to pull out, the uncertainly of an pre-announced withdrawal would lead to a spike in oil prices.

Just my guess. Markets do loath uncertainty.

What No One Will Say

Or rather, let's just say this is what very few people are willing say.

One of the reasons for the subprime mortgage debacle, the debacle that has led to what is certainly the worst real estate slump since the early 1990s and what may well become the worst since the Great Depression, is found here, to wit, banks and lenders were pressured to relax lending standards in order to make more loans to minorities.

Writes Liebowitz, "Countrywide's chief executive bragged that, to approve minority applications that would otherwise be rejected 'lenders have had to stretch the rules a bit.'" I love it: instead of the borrower having to have a down payment, a job, and a credit score, now all that was needed to get a mortgage was a diploma from a credit counseling program.

Skip to today and what was once just a little "stretching of the rules a bit" (in order to provide loans to minorities in order to avoid discrimination lawsuits), has now (inevitably) been dubbed "predatory lending". Nice. Compel the banks and mortgage companies to make these loans and then brand them as thieves and carnivores when the folks don't master the skills taught in their ACORN credit counseling sessions.

It was great politics then and it's great politics now.

Sometimes you just can't win.

Once again, the law of unintended consequences.