From the AP yesterday, reporting in detail on how BushCo would not implement a crackdown on the worst of the mortgage practices and just plain ignored people who were warning of the long-term consequences. This is going to make you mad:
The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.
“Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.
Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one 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 federal regulators in early 2006. Two years later, WaMu became the largest bank failure in U.S. history.
As for the rules that were deep sixed?
- Regulators told bankers exotic mortgages were often inappropriate for buyers with bad credit.
- Banks would have been required to increase efforts to verify that buyers actually had jobs and could afford houses.
- Regulators proposed a cap on risky mortgages so a string of defaults wouldn’t be crippling.
- Banks that bundled and sold mortgages were told to be sure investors knew exactly what they were buying.
- Regulators urged banks to help buyers make responsible decisions and clearly advise them that interest rates might skyrocket and huge payments might be due sooner than expected.
Those proposals all were stripped from the final rules. None required congressional approval or the president’s signature.
So an ideological commitment to getting the government off of the backs of both lenders and buyers trumped a moderate tamping down of clear excesses — a tamping down that may have moderated the bursting of the bubble as well as the meltdown of the mortgage securities; and may have avoided (or at least moderated) the massive government intervention now ongoing to save big portions of the economy.
Read the whole thing — the lobbyists against any further regulation will be familiar to you: Lehman Brothers, WaMu, Countrywide, IndyMac and others.