When the sub prime crisis broke, everyone was concerned with the cause and both the short and long term fixes so we could all get on with our lives. None of the aforementioned discoveries ever happened. We all became distracted by other catastrophes in our country and, eventually, in most of the free world. Our government quickly came up with the answer to problems: money (ours). We gave large amounts to almost anyone and any business or organization that asked for help. Two words popped up that showed how willing we were to change to make things better: transparency and oversight. Nothing was going to be hidden and someone would keep an eye on everything that was going to be done. We all yelled "Eureka!" and things were going to get better very soon. As Lee Corso, former football coach and one of the hosts of "Game Day" is known to say, "Not so fast, my friend!"
Before we could count to a trillion we had our first crack in the plan. Treasury Secretary Paulson convinced us a $700 billion bailout was essential, with the money going to buy troubled mortgages. This would get the credit markets working and real estate hopefully turning around. We agreed and Paulson's first act was to divert the newly authorized funds (see: "What's in a Name") and the two aforementioned terms apparently were missing. That was only the beginning. AIG needed money - about $80 billion to survive - and ended up with a lavish weekend outing costing some obscene amount, and their advance from us increased to $150 billion. "How" and "why" were my first two words when all was brought to light. Again the magical above referenced two words seemed to be out of sight? All of the money that was being spent, especially on Wall Street, was to free up the credit markets and get them working again. Yet even as I write this article we still do not have, among many things, a viable jumbo mortgage market in this country. Again I ask, why?
Fast forward to the news of this week and I believe we have really discovered what's wrong and what is needed to be done. This week we found a governor of a state selling a U.S. Senate seat to the highest bidder, a trusted financial adviser on Wall Street and former leader of the NASDAQ Exchange being exposed and likely soon to be indicted for running a $50 billion Ponzi Scheme, and the Big Three auto makers seeking a mere $15 billion to have the ability to last until March (about 58 to 88 days). That would be about $170 million to $260 million a day. Meanwhile the UAW says they have done nothing wrong and are tired of being picked on. (Writers note: I haven't a problem with the UAW and anything they say or do as long as they do not want our money). The main reason we supposedly want to do this is to save up to 3 million jobs. With the money we are going to give the Big 3 automakers, we could instead let them go under and give all the workers between $55,000 and $90,000 a week. Could this be a better answer?
Now the question is re-framed: Who is going to oversee the overseers? The most transparent item is wondering who we can actually trust to tell the truth and do the right thing. What good are rules and regulations if those who set them up and those who are empowered to regulate them don't? This current calamity certainly puts the debate over Gay Marriage in perspective.
I bring all of this up because Americans are too unconcerned about our country, our institutions and our leaders. I believe their major concern is who will be the next American Idol, who will win Dancing with the Stars and how much they will be getting in the next stimulus package. Meanwhile everyone is hard at work setting up new rules and regulations to make the future safer. The mortgage industry, which is my industry, is being shackled by new requirements and restrictions that will only make getting a good loan even harder. They had - and still have - a set of rules and requirements in place that many overlooked before the crisis, and now we are adding to those. I am concerned if loans become too hard to get and the real estate recovery, which is so important to all facets of the economy, will be delayed even longer. The credit crunch is still with us, we still don't have a viable jumbo mortgage market and here comes the new hurdles to jump.
Let me list a few of the new regulations that have been added:
1. Fannie Mae and Freddi Mac have changed from state loan limits to different county limits within a given state. They have set up redlining within states and among states. Progress might only occur where the new higher limits are in place.
2. Some lenders will not give a loan to anyone who owns 3 properties in a given zip code, even if the properties are free and clear. Why would this be added now when foreclosures are a problem and buyers are needed.
3. A borrower cannot have more than 4 properties with mortgages if they wish to get a Fannie Mae or Freddie Mac conforming loan. This pertains to all borrowers even if they have good credit, good earnings, low loan to values and sufficient reserves.
4. Credit scores and loan-to-values have new importance for those who wish a loan with an amortization over 15 years. Borrowers with credit scores over 700 needn't worry; those under 700 have much higher costs based on the score and their loan-to-value. These costs are in addition to the costs for the loan and/or the interest rate.
These are just the beginning of new regulations in just one industry. Unfortunately it appears we do not have anyone without an agenda who is looking out for you in my industry, the mortgage industry, or probably any other. The danger persists because the pendulum swing appears to have gone too far. How we changed into this current climate before the mortgage market has really recovered is somewhat of a mystery. I firmly believe we cannot leave it there. Each and every one of us needs to begin to become involved in every aspect of our lives that matter to us regardless how insignificant it may seem. We need common sense to prevail in a land where common sense isn't considered as important as the knowledge bestowed upon us by the great figures. Believe it or not, that includes our politicians. It is time to finally figure out who might have the needed solutions and who is just another one of our problems. Our future depends upon it!