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From: Bart (129.171.32.13)
Subject:         Reckless Mortgage Lenders Do Not Deserve to Be Rescued Either
Date: January 15, 2008 at 4:18 pm PST

Reckless Mortgage Lenders Do Not Deserve to Be Rescued Either
Jan 09, 2008

The U.S. government is working to develop several different programs meant to stave off foreclosures. Although policymakers claim that these programs are for struggling mortgage borrowers, it is obvious that the real goal is to bail out mortgage lenders. The question is: do reckless lenders deserve to be rescued?

By Pat Summers

In a recent article I explained why reckless mortgage borrowers do not deserve to be rescued, but I think it is important to touch on why reckless mortgage lenders do not deserve to be rescued either.

Because, let's face it--that's who the bailouts are really for.

President Bush and Congress can't come right out and say that, so they talk about struggling borrowers and tug on heart strings in an effort to confuse the issue. To seal the deal, they look straight into the nearest camera and say they do not want to bailout mortgage lenders.

The reason they mention the latter bit is because everybody knows that it is mortgage lenders who hold a fair share of the blame for this unprecedented debacle. Mortgage lenders were the ones who giddily made loans they knew borrowers couldn't pay just to make a quick buck.

That's not to say that lenders are completely at fault; they needed greedy (and/or stupid) borrowers and politicians who would look the other way for the scheme to work. But it was lenders who initiated the madness.

Pandora's Box

During the housing boom, some of the more reckless mortgage lenders were willing to lend money to anyone with a pulse. Unlike the old days, you didn't have to prove that you could afford the house or that you had the means to pay anything on a monthly basis. Heck, you didn't even have to prove you were employed.

Lenders were willing to loosen regulations for several reasons. First, home prices were rising fast. If borrowers defaulted, it would be easy to foreclose and sell the home for a profit. Second, it was suddenly ridiculously simple to pass the risk off to other parties by bundling the loan with several others loans and selling the whole kit and caboodle to securities investors.

It's also worth mentioning that there were a ton of new mortgage products created to make it easier to get borrowers into high-priced homes that weren't attainable with a traditional fixed rate mortgage.

Lenders were living large until the bottom fell out of their scheme. Home prices started to fall versus rising as anticipated. Interest rates also changed direction, eroding the value of outstanding mortgages.

Borrowers began to default in increasing numbers. Most lenders weren't surprised--remember they willingly and knowingly loaned money to people who couldn't afford it. The real twist came when some of the investors demanded that lenders take back the more worthless pools of loans. This is why some lenders went bust (212 since late 2006) and why others have been forced to write down billions of dollars in home loans.

Lenders were given enough rope to hang themselves with and that is exactly what they did. Now the government is stepping in to hide how insolvent U.S. banks really are.

The Fed has directly bailed out predatory lenders using billions of dollars that they pulled out of thin air. Bush has initiated a teaser freezer and wants to utilize taxpayer-guaranteed loans to ensure that lenders do not have to buy back anymore worthless paper.

There are dozens of other proposals in the works. Each is different, but the ultimate goal is the same: transfer risk and accountability away from mortgage lenders.

Bailout? No Way!

Mortgage lenders and builders contributed millions of dollars to various political campaigns. That's why it was so easy for them to get politicians to look the other way during the boom and why it has been so easy for them to convince the government to do something to help afterwards.

If politicians want to bail out the monsters they helped create, well I say more power to them. But they should do it with their money--not with programs that come with a taxpayer guarantee.

I am not at fault for their shallow display of evil and neither are other 98 percent of people who will be flipping the bill generated by reckless lenders. These lenders knew what they were doing wrong and should be held accountable for their actions.

If politicians can't do that, then taxpayers should. Taxpayers are the ones who stand to lose the most from this mess. They are the ones who will be ensuring that sleazy business people profit.

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