Thursday, July 22, 2010

Dodd-Frank Provides For Only One Flavor of Mortgages -- Just Like the Old Soviet Union

By Robert Stowe England
July 22, 2010

"Like the Saturday Night Live lunch counter from the late 1970s that, regardless of what the customers reasonably requested, offered only cheeseburgers, chips, and Pepsi, the Mortgage Reform and Anti-Predatory Lending Act (the Mortgage Reform Act) would essentially mandate that all flavors of mortgage loans besides 'plain vanilla' may disappear from the menu," write Krstie D. Kully and Laurence E. Platt at K&L Gates LLP law firm.

Their assessment appears in a newsletter released by the law firm July 8, that can be read at this link: http://www.klgates.com/newsstand/Detail.aspx?publication=6528

This section of massive Frank-Dodd financial services bill targets originators of mortgages that are not plain vanilla. These companies and institutions are targeted for "punishment through enhanced monetary damages, defense to foreclosure and risk retention requirements," Kully and Platt state.

"Only time will tell whether the mortgage finance industry will assume the risks and expand the menu of mortgage options," they write.

So, let me get this straight. Senator Chris Dodd and Representative Barney Frank and Congress refused to address the obvious need to reform and possible do away with Fannie Mae and Freddie Mac?

They are in no rush to address the biggest bailout of all time and the chief cause of the housing and mortgage bubbles that led to a financial meltdown that has left millions of Americans and their lives and fortunes in tatters?

Instead, they want to punish consumers and deny them any choices other than Fannie and Freddie and Federal Housing Administration mortgages? The only choices are the choices the goverment provides for you. Goodbye, America. Hello, Soviet Union.

No wonder the vast majority of Americans are so angry at Washington.

These days every decision and law emanating out of Washington takes away our liberties and choices and imposes an unworkable, untested solution that suits the ideology and vanity of the politicians and apparently virtually no one else.

Call it ideological self-induglence from people who actually think they know it all. All this is done in ways that make it more difficult and more costly for the rest of us to live, whether from higher taxes or, in this case, the lack of flexible, affordable and preferable mortgage options.

The law virtually outlaws Alternative A loans and thereby potentially denies the opportunity to own a home or refinance a mortgage to millions of Americans with good credit and a traditional 20 percent down payment.

The Alt-A or low or no documentation loan had a long and successful history as the mortgage of choice for self-employed people. An Alt-A with a sufficient down payment has -- for 150 years -- been a stable and valued mortgage at thrifts and banks and even in the mortgage-backed securities market.

The Alt-A was tarnished in the great decline in underwriting practice that occurred from 2005 to 2007 -- when it was provided to wage earners and not the self-employed. It was handed out like candy to people with low credit scores and not to the traditional high credit score borrower. It was given to anyone who could fog a miror with no money down instead of the traditional 20 percent down payment borrower who used these loans.

The irony is that Federal Housing Administration is actually making more risky loans that the traditional Alt-A loans that were funded in the market place without government backing. And, in the case of those loans, the taxpayers will be on the hook again. Just as we have been for the bailout of Fannie and Freddie.

Clearly, the majority in Congress have learned virtually nothing of value for the nation from the financial crisis. If they did, they are keeping it a secret.

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