Déjà vu: Holder deal risks another mortgage crisis
Administration forcing bank to fund loans people can't afford
Published:
17 hours ago
Jerome R.
Corsi, a Harvard Ph.D., is a WND senior staff reporter. He has authored many
books, including No. 1 N.Y. Times best-sellers "The Obama Nation" and
"Unfit for Command." Corsi's latest book is the forthcoming
"What Went Wrong?: The Inside Story of the GOP Debacle of 2012 … And How
It Can Be Avoided Next Time."
NEW YORK – In the new $13
billion JP Morgan Chase subprime loan deal with the Justice Department,
Attorney General Eric Holder appears to have designed a multi-million dollar,
backdoor kickback for activist groups like the disgraced community organizer
ACORN.
Critics say the Obama
administration has learned nothing from the mortgage meltdown in 2008-2009,
which was prompted by the default of subprime loans packaged into financial
instruments.
Instead, the
administration is engineering a strategy to revive the subprime mortgage market
by forcing banks to fund left-wing community organizing groups that would once
again place low-income families into mortgages they can’t afford.
As Investor’s Business
Daily pointed out in an editorial Tuesday, “Annex 2” of
the JPMorgan settlement agreement, announced Nov. 19, mandates that
“JPMorgan fork over any unclaimed or unpaid damages to a nonprofit group that
finances Acorn clones and other shakedown groups.”
“Annex 2” specifies that
JPMorgan pay out $4 billion in “consumer relief” to aid consumers harmed by its
packaging of subprime loans into securities that were sold to institutional
investors at the height of the housing boom.
JPMorgan has agreed to
make payments under the Making Home Affordable Program and the Home Affordable
Modification Program, two Obama administration programs designed to get
low-income families into home mortgages. The programs assist low-income
families with mortgage loan forgiveness, loan modification agreement payments
and targeted mortgage obligations to “relieve urban blight.”
However, if by Dec. 31,
2017, JPMorgan has not paid out the full $4 billion, then the Holder Justice
Department will require the bank to pay “liquidated damages in the amount of
the shortfall to NeighborWorks America, a government-funding organization that
supports a network of left-leaning community organizers the IBD editorial characterized
as “operating in the same vein as Acorn.”
The payments to
NeighborWorks America could provide the group with hundreds of millions of
dollars to utilize in various programs to get low-income families into home
mortgages.
IBD pointed out that in 2011
alone, NeighborWorks America provided $35 billion in “affordable housing
grants” to 115 ACORN-like groups, “with recipients including the radical
Affordable Housing Alliance, which pressures banks to make high-risk loans in
low-income neighborhoods.”
IBD concluded Holder’s
backdoor kickback to leftist groups seeking to get low-income families into
risky mortgages funds all over again the problem that led to the subprime
mortgage crisis in 2008.
The IBD editorial said:
In effect, lenders are bankrolling the same parasites that
bled them for the risky loans that caused the mortgage crisis. Infused with new
cash, they can ramp back up their shakedown campaign, repeating the cycle of
dangerous political lending that wrecked the economy.
Under the dubious deal, JPMorgan is also obligated to
donate foreclosed homes to these “nonprofits” while offering home loans to “low
to moderate income borrowers” in areas hit “hardest” by subprime foreclosures.
The consent order refers JPMorgan to a HUD map of
“targeted” areas such as Detroit, Cleveland, Atlanta, Miami, Washington, D.C.
and Chicago. In announcing the deal, Holder alleged JPMorgan “misled investors”
in securities backed by subprime mortgages. Yet, oddly, the deal aids only
deadbeat borrowers — not investors.
Like other recent bank shakedowns, the JPMorgan deal is
really an anti-poverty program benefiting Democrat strongholds hit hardest by
subprime foreclosures.
IBD calculates the
“off-budget welfare program” engineered by Holder’s Justice Department and
underwritten by large U.S. banks such as JPMorgan Chase, Bank of America, Wells
Fargo, and Citibank, now totals “$86 billion and climbing,” amounting to “a
fraud, using Wall Street to finance a social agenda.”
Déjà vu
Providing home mortgages
to homebuyers unable to pay mortgages when interest rates rose across the
economy was the crux of the subprime mortgage market. It expanded from the
rationale of providing low-income families with “affordable housing” to the
point at which income verification was considered a minor detail in a housing
market in which rising home values had become the norm.
The Community
Reinvestment Act, or CRA, was signed into law by President Jimmy Carter in 1977
with the goal of forcing banks to provide credit to businesses and homeowners
with poor credit.
The CRA carried out a
social agenda of stopping banks from “red-lining” inner-city areas, a practice
of refusing to lend in places where the risk of default was high.
Even though lending to
those with poor credit is inherently risky, the Carter administration was
intent on forcing banks to accept a social responsibility to provide credit to
homeowners and businesses in low-income neighborhoods.
The CRA became
super-charged during the Clinton administration with a set of new rules that
allowed subprime mortgages to be securitized.
Federal Reserve Chairman
Ben Bernanke, in a speech
to the Community Affairs Research Conference in Washington, D.C., on March 30,
2007, noted a 1992 law passed during the Clinton administration expanded
the CRA market by requiring the government-sponsored enterprises Fannie Mae and
Freddie Mac to securitize “affordable housing loans,” a euphemism widely
understood to mean low-income housing loans.
In the early months of
2007, before the mortgage bubble burst, subprime mortgages constituted as much
as 65 percent of all loans packaged into mortgage-backed securities.
One of the lead subprime
mortgage writers was Countrywide Financial Corporation, which in 2006 financed
approximately 20 percent of all mortgages in the United States.
Bubble built on
subprime success
Headed by Angelo Mozilo,
Countrywide pioneered in providing undocumented loans in which mortgage
applicants were not required to provide any loan documentation or down
payments.
To keep the monthly
payments low for the first year or more of the loan, the unregulated subprime
market developed a whole set of unorthodox mortgages, such as “interest-only”
loans in which no principle payments were required or “balloon” loans in which
what amounted to a down payment was postponed.
As CNBC reported in a Special Report
first broadcast Feb. 12, 2009, titled “House of Cards”, the best mortgage
customer at the height of the mortgage bubble became “anyone with a pulse.”
CNBC quoted Wall Street
mortgage banker Michael Francis, who enlisted lenders on the West Coast to
supply him with mortgages to package into mortgage-backed securities bonds.
“We removed the litmus
test,” Francis told CNBC.
“No income, no asset. Not verifying income … breathe on a mirror and if there’s
fog you sort of get a loan.”
Even the credit agencies
played along. CNBC interviewed Ann Rutledge, who rated securities for Moody’s.
When home prices surged,
no borrowers defaulted, and riskier Triple-B rated securities made from
subprime mortgages began to look as good as the safe Triple-As, she explained.
“Eventually the market
gets smart and says, ‘Let’s lower the requirements for Triple-A,” Rutledge said.
The credit rating
agencies had an incentive to award a mortgage-backed security the best possible
ratings, CNBC noted, because the agencies were paid for their appraisals by the
very investment banks that issued the mortgage-backed securities.
Bubble burst
The mortgage bubble was
destined to burst when Federal Reserve Chairman Alan Greenspan and the Fed
began raising interest rates late in 2004.
When Ben Bernanke
succeeded Greenspan as Fed chairman on Feb. 1, 2006, he continued Greenspan’s
policy of tightening credit.
Fed fund rates, at 4.29
percent when Bernanke took over, rose to 5.25 percent in August 2006, when
rates stayed at or near that plateau for almost a year.
By August 2007, Bernanke
and the Fed realized the mortgage bubble had burst and the economy was entering
a recession.
At that point, Bernanke
and the Fed began lowering rates, dropping Fed funds rates from the plateau of
5.25 percent in August 2006 to 4.24 percent by the end of 2006 and to nearly
zero by the end of 2007. Still, the move to drop rates was too little and too
late. Unfortunately, the damage had already been done.
Subprime mortgages written
during the building of the mortgage bubble could not withstand higher rates.
The wave of foreclosures
that started in the subprime market eventually spread to the mortgage market as
a whole, triggering not just a meltdown of the housing market, but also a
general collapse of the economy that led to the massive recession that plagued
the end of George W. Bush’s second term as president.
Read more at http://www.wnd.com/2013/12/deja-vu-holder-deal-risks-another-mortgage-crisis/#XEyQ4z68EukePG6I.99
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