Sub-prime torpedoed

Dateline. Washington, D.C.

The ticker feed from all wire services is reporting the financial tsunami of defaults on sub-prime loans. Bernake is reported to have “said that uncertainties over the economic outlook had increased, most notably the future trend in oil prices and a possible knock-on effect from the sub-prime lending crisis into the broader US housing and credit markets. Thus far, the Fed chairman declared, the difficulties faced by sub-prime lenders – which deal with customers who are shunned by mainstream lenders – were being contained. He argued that the shakeout caused by defaults on mortgages by overstretched and less creditworthy borrowers was a necessary correction after the lending excesses of the past few years.”

So we are to understand that investors pulling out of the market is a necessary correction after lending excesses.

Paul, just a word here….that dog won’t hunt.

The same regulatory agencies that looked the other way while no-doc provisions were being abused will have to come to the table with some way out of this mess. The same regulatory agencies that allowed predatory lending to continue will have to come to the table with some way out of this mess.

It is rather ironic. Not to many years ago, the government was all about protecting minorities and the disenfranchised. Lenders across the county were complicit in “red lining”. The folks in the board rooms determined it was not profitable to lend money to what they considered customers of greater risk. Of course, credit worthiness was not always the only yardstick and the purse strings became much tighter when the customer was of color.

Times have changed. Now lenders couldn’t wait to pour money into loans for risky borrowers. It became the front end of high stakes bait and switch game with investors and bonds. The house of cards was built rather shabbily and it has begun to tumble down.

In the end, the same people will be hurt. Years ago, credit was denied and the opportunities that went along with credit were denied at the same time. All the legislation and affirmative action will never change what occurred.

Now, the reverse has occurred and credit has been granted that can not be repaid. Terms have been granted that were not understood and can not be met. All the new legislation and continued affirmative action will not change that it has happened again.

We won’t see much of it here in this market. We will just see the effects of it. We will read of the fore closures in other parts of the country. Politics will keep it’s hold on our headlines. The nightly news will do human interest stories. We just won’t feel the pain.

I know that I am a big believer in people taking responsibility for their actions. There are many that would point to the people that borrowed the money to buy homes that they could not afford and say that it is their own fault. They put themselves in that position.

I will merely say that I believe every lender is a public servant with an inherent responsibility to be good stewards of funds that they are entrusted with and an obligation to be reasonable counselors in financial matters they are asked to supervise. I believe that every real estate agent is a public servant with an inherent responsibility to represent one side of a transaction in a fashion that is totally loyal and focused on the best interests of their client.

We can legislate ad infinitum. We can create associations with by laws and code of ethics. We can place hands on bibles and swear to the living God.

It won’t change anything.

There are enough laws on the books. Enforce them!

I am sure that it is a violation of someones civil rights if you are placed in a position of trust and put them into a bad loan that ends up bankrupting them. I am sure it is a violation of someones civil rights if you put them in your car and show them homes that are out of the range of what they can reasonably afford and convince them that owning more house is a good idea. Cajoling people to extend themselves and then introducing them to a friendly sub-prime lender would seem to me to be a pretty egregious violation of their civil rights.

The laws weren’t written for that you say? Oh, I just sort of take that word “civil” in a literal fashion. It is not civil to feast at the expense of an other’s famine.

I will not be surprised to see the Federal Government intervene and come up with some sort of bail out plan for those that find themselves on the verge of foreclosure. I will also not be surprised to see the culprits slip out the gentle back door of corporate protection and never be held accountable for their actions. There may be the show case public hearings to justify the bail out. If so, there will be a great deal of pontification and holier-than-thou grandstanding.

As it unfolds, please remember, this is not happening in a far off land. This is your country. This is not a quirk in a system. It is just another step taken by people in positions of trust to destroy that trust. The same legislators that decry the behavior of the guilty were in power when the actions took place.

And when the dust settles, we will have returned to a place where folks save up money for a down payment before buying a home. If they save a little bit, the FHA has a program. Many professionals will learn that the advice to protect their reputation was really an admonishment to act professionally.

The sub-prime torpedo will finally have hit the correct mark and imploded. I think Dorothy was right when she sang “tomorrow, tomorrow, the sun will shine tomorrow”.

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