Tuesday, April 20, 2010

Loan Approval

Once upon a time, a group of politicians determined that everyone should own their own house. They quickly discovered that there were (prudent) lending rules everyone followed that were preventing people from getting mortgages so they could These evil and unfair requirements for a mortgage included a 20% down payment, spending less than 1/3 of your income to service the debt, proving your income and having a history of paying your bills. Since these rules were such a barrier to the goal that everyone should”, they just changed the rules. The government agencies (Fannie Mae and Freddie Mac) that controlled the mortgage business invented “sub-prime” mortgages because a group of politician told them too. They told the banks that they would guarantee any mortgage that was made according to these rules. A guarantee was based upon the US Treasury. Making loans that are guaranteed by the US Treasury is a very prudent thing to do and banks are supposed to make prudent loans – so they did. And they made money doing it

Because of all this, people were able to get loans so they “own their own house. The problem was they bought houses that they could never support with money they could never pay back. We all know how that worked out. The people that borrowed needed someone to blame and the banks were a convenient target. Saying that they didn’t know that their adjustable loan would actually adjust or the broker misled them (how?), was better than admitting that they were the greedy ones that had to have a 5 bed room house with granite counter tops and a kitchen island that they knew they couldn’t afford.

Now we are where we are. The populists and the media have agreed that the bad guys in all of this are the banks and it is Bush’s fault.

But there is the internet. People who are interested should search the quote: “everyone should own their own house” and Barney Frank. Interestingly search for the NYTimes article of 9/11/2003. Educate yourselves. Try this one too http://www.c-spanvideo.org/videoLibrary/clip.php?appid=595231322

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