Representative Maxine Waters, D-Ca, was interviewed by Fox TV 
Friday concerning the Housing Bill. In that interview she repeatedly referred to lenders as villains, who lured unsuspecting people into traps. I guess the villainous plot was to foreclose and kick the unwitting victims out of their homes.
The immediate focus of these remarks was Countrywide, for the moment the kick 'em while they are down target. I am not a fan of Countrywide, but they are not villains because they offered neg am loans or subprime stated loans or even hybrid ARMS with prepayment penalties. There may be villains affiliated with Countrywide, but the villainous behavior was not targeting victims whom they could lure into a foreclose trap.
It does not seem to me to be productive to use such language, mostly because it does not seem true to me. Are the people who took advantage of stated loan programs generally unwitting victims that were tricked by evil tricks of banker villains? If so, it was not the lenders who were the villains but the loan originators who directly contacted the borrowers, but that just does not describe the borrowers that I know. For the most part, self employed, competent, educated, good well, established credit histories. Even the subprime borrowers know well the terms of their loan. When I speak to them today, and explain that I cannot help them, they are not speaking to me as victims of anything but a changed market and a loss of access to credit.
They are not victims of an evil banking plot to deprive them of their home. And I think that such a portrayal is counterproductive. Probably misdirecting efforts from finding true solutions to a real credit crisis.
And if Fannie Mae and Freddie Mac are suffering significant losses, it is not because they lured unwitting victims into negative amortization, high margin, stated loan programs with criminally high prepayment penalties.
Jim Crawford indicated, in a comment on his post asking if we need this bailout , that many conventional foreclosures in his area were a result of perhaps questionable transactions. In that case, the villains are the buyers and the victims are the lenders. I have asked a couple times for a reason for excessive conventional losses. Jim's comments were as close to an answer as I have seen.
I still wonder if the credit crisis is not caused by greater underlying economic problems.
The Housing Bill is not a solution to these problems. At best, it seems to me to be a kind of signal to market investors that the federal government will not let the credit markets fail. Helping 400,000 people with foreclosure bailouts is not a solution to the nations foreclosure, high inventory, dropping sales, dropping value problem.
This is problem is not going to be fixed with references to villainous lenders or by making this housing bill to be more than it is - just a bill that happened to be present when Congress needed to pass a bill.
The housing bill has many provisions, including some significant changes with FHA financing, but I think very little addresses villainous lenders or how to repair the credit market. Congress needed to do something, so they passed the bill that was there.
Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.
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