Wednesday, March 23, 2011

How the Federal Gov't is Ruining the Housing Industry

Today the Commerce Department came out with their New Housing Sales numbers for January.

The article sites "a lack of demand because buyers don't have access to credit" as a result of unemployment.

Obviously if you don't have a job you can't get a loan, but not having access to credit isn't a result of unemployment it’s a result of over-regulation.

There are still plenty of buyers in the marketplace. The real problem is that by and large Banks simply aren't making loans. And for the loans they are making, the process has become so difficult, so mired in red tape and frankly, fear, that many have simply left the marketplace altogether (both consumers and Real Estate and Mortgage professionals; I have personally observed this for 2 years now. It’s truly maddening to try and get a deal done these days). And no amount of “bail out” money is going to loosen the credit strings. Not with the monstrosity known as the Dodd-Frank Wall Street Reform Act stifling the entire industry.

The Gov't regulations rammed through by the Pelosi/Reid Congress and signed by President Obama, have had the affect of bringing the Real Estate and Mortgage Business to a virtual standstill. In their attempt to "regulate" the "reasons" for the financial crisis, they have not only NOT solved the real problem, but in fact made things worse. Like all Big Gov't intervention, they have attempted to solve a problem they created, by mis-assigning its cause and then targeting that wrong cause with further regulation.

What am I talking about ? Well...The crash was not initially caused by Wall Street and the Junk Securities they were selling as AAA investments, but by the Gov't itself, meddling in the housing and mortgage markets in the first place. Specifically the CRA and Barney Frank!

Granted CMO/CDO bundlers and traders, Moody's, Fitch and Standards and Poors are all culpable and I am certainly not excusing the fraud and collusion that existed in rating mortgage backed securities, backed by sub-prime JUNK paper, as AAA (a crime by the way that no-one has yet to be held accountable for). But that wasn't the earlier beginning of the problem. It started with the notion that Banks MUST make loans to people who can't afford them. An Unequivocal overreach of Gov't regulation and violation of the very fundamentals of a free market, all in the name of “social justice” (the idea that owning a home is a “right” instead of a privilege).

If the Real Estate and Mortgage Markets were truly run by Free Market principals none of this would have ever happened. Why? Because the free market would never have allowed such high credit risk borrowers if not forced to!

If the free market wanted (wants) sub-prime loan products, and there is a market for them, then the free market will create and regulate them. If some Banks want to take the risk, and that risk is honestly and accurately rated, then the market itself (in this case the secondary mortgage market), will value them (and their risk), buy them, and voila, we have a market.

But that’s not what happened. The Gov’t regulations (mentioned above) forced Banks to create loan products for borrowers they knew couldn’t qualify in the private free market industry of risk to reward (profit) actuaries. And once created there needed to be somewhere to put this paper.

Wall Street, in an attempt to solve the problem of what to do with this junk, bundled and sold these as securities with FALSE risk assessments. Frankly I’m not sure they could have done anything else. Again I don’t condone what happened but I ask the question “What were the Banks supposed to do once they were forced to write this paper”?. They needed an exit strategy. They wouldn’t hold such paper on their own accord, its risk was too high. Clearly Wall Street had a problem. What to do with this junk. The real Fraud here isn't that they bundled and sold these loans but the fraudulent risk assessments placed on these securities in the first place. Perhaps that too was an unavoidable expedient. But whether you come down against Wall Street Traders or the Rating Agencies, it is clear to me that it is Gov’t overreaching regulations based on abstract ideology that CAUSED the problem.

So what do they do? Pass more regulation of course. The very person that helped create the regulations sparking the crisis in the first place has now co-sponsored and helped push through an even more overreaching law, targeting the WRONG WHY's further destroying the Housing Market.

Here's a clue Barney...LOOK IN THE MIRROR, and RESIGN. PLEASE......