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Old 04-06-2009   #131
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Originally Posted by -k- View Post
Not one to comment in the eddy very often, but there is usually more than enough regulation (and new regulations are rarely that difficult to institute on non-hot button issues if the politicians want to). Its the enforcement of these regulations that is often lacking.
One has to ask where was/are the myriad of regulatory agencies in all of this nonsense? The government, and individuals in government by name, are is never held accountable for their malfeasance.

There's no accountablity.

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Old 04-06-2009   #132
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Theophilus, good question. Here's a partial answer.

Mortgage-crisis warnings ignored
Associated Press, Dec. 2, 2008

By Matt Apuzzo

WASHINGTON - The Bush administration ignored warnings of a financial meltdown and backed off proposed curbs on no-money-down, interest-only mortgages years before the collapse, buckling to resistance from some of the same banks that now have failed, an AP review of regulatory documents shows.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, a year before the housing implosion cost her a job.

Bowing to tough lobbying - along with assurances by banks that the troubled mortgages were OK - regulators delayed action for nearly a year.

By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed-rate mortgages," David Schneider, home-loan president of Washington Mutual, told regulators in early 2006. This year, Washington Mutual became the largest bank failure in U.S. history.

The administration's blind eye to the impending crisis was emblematic of a philosophy that trusted market forces and discounted the need for government intervention in the economy. Its belief paradoxically has ushered in the most massive government intervention since the 1930s.

"We're going to be feeling the effects of the regulators' failure to address these mortgages for the next several years," said Kevin Stein of the California Reinvestment Coalition, who had warned regulators to tighten lending rules before it was too late.

Many of the banks that fought to undermine the regulatory proposals are out of business or accepting billions in federal aid to recover from a mortgage crisis they insisted would never come.

In 2005, bank regulators proposed new guidelines for banks writing risky loans. Today, in the midst of the worst housing recession in a generation, the proposal reads like a list of what-ifs:

• Regulators told bankers exotic mortgages often were inappropriate for buyers with bad credit.

• Banks would have been required to increase efforts to verify that buyers had jobs and could afford houses.

• Regulators proposed a cap on risky mortgages so that a string of defaults would not be crippling.

• Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.

Those proposals all were stripped from the final rules. None required congressional approval or the president's signature.

"In hindsight, it was spot on," said Jeffrey Brown, a former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns.

The government's banking agencies spent nearly a year debating the rules, which required unanimous agreement among the OCC, Federal Deposit Insurance Corp., Federal Reserve, and the Office of Thrift Supervision - agencies that often do not agree.

Federal regulators especially were concerned about mortgages known as "option ARMs," which allow borrowers to make payments so low that mortgage debt actually increases every month. Banking executives accused the government of overreacting.

"An open market will mean that different institutions will develop different methodologies for achieving this goal [of managing risks]," Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, said in March 2006.

Countrywide Financial Corp., at the time the largest mortgage lender, agreed. The proposal "appears excessive and will inhibit future innovation in the marketplace," said Mary Jane Seebach, managing director of public affairs.

One of the most contested rules said that before banks purchase mortgages from brokers, they should verify the process to ensure buyers could afford their homes.

Some bankers now blame much of the housing crisis on brokers who wrote fraudulent, predatory loans. But in 2006, banks said they should not have to double-check the brokers.

"It is not our role to be the regulator for the third-party lenders," wrote Ruthann Melbourne, chief risk officer of IndyMac Bank of California.

In the summer, the United States seized IndyMac and put up $9 billion to ensure its customers did not lose their deposits.

The comptroller of the currency, John C. Dugan, was among the first to sound the alarm, in mid-2005.

Speaking to a consumer-advocacy group, Dugan painted a troublesome picture of option-ARM lending. Many buyers, particularly those with bad credit, soon would be unable to afford their payments, he said. If housing prices declined, homeowners would not even be able to sell their way out of the mess, he said.

Diane Casey-Landry of the American Bankers Association said banks' opposition was based on their best information.

"You're looking at a decline in real estate values that was never contemplated," she said.

Uh, I'm just gonna go find a cash machine.
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Old 04-06-2009   #133
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Good illustration of the rats guarding the cheese. Wasn't the oversight of Fannie Mae and Freddie Mac the responsibility of the U.S. Senate Committee on Banking, Housing and Urban Affairs whose chairman was Democrat Chris Dodd?

I think it's a bit disingenuous to lay the blame solely on the administration when the legislature was controlled by another party. What specifically has this congress done since 2006? I don't see any legislation of any meaningful consequence to the average man on the street originating from this branch of government.

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