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Thread: latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailouts

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    Banned Melonie's Avatar
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    Default latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailouts

    WASHINGTON (Reuters) - The federal government should offer troubled borrowers hundreds of millions of dollars to bail them out of subprime mortgage loans, several leading Democratic lawmakers said on Wednesday.


    "The federal government can send in an infusion of (money) to prevent foreclosure," said Charles Schumer (news, bio, voting record), a New York Democrat.

    The cash infusion is needed right away and should go to both help fund community groups aiding troubled borrowers and to directly fund bailouts, Schumer said.

    Schumer spoke as chairman of the Joint Economic Committee, a joint committee of Congress, and appeared with Democratic senators Robert Menendez (news, bio, voting record) of New Jersey and Sherrod Brown (news, bio, voting record) of Ohio.

    He said he planned to introduce legislation soon.

  2. #2
    BrunetteGoddess
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    Default Re: latest chapter on 'entitlement' mentality

    So what are your thoughts on this Melonie?

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    Banned Melonie's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    hmmm, let's see ... if this passes it will mean that in addition to possibly having already subsidized the original Fannie Mae mortgage that allowed the deadbeat to buy a house that they can't afford, the US taxpayer must now subsidize part of the deadbeat's mortgage payment forever to insure that they can continue to live in the house that they can't afford. Then if the deadbeat dies, all of the tax / mortgage subsidy money that was invested in the house by US taxpayers can be inherited by the deadbeat's next of kin !

    At the same time, younger Americans who were not able to afford to buy a house yet will have their taxes increased in order to pay for the mortgage subsidies for the deadbeat, reducing their own after tax incomes to the point where they will probably never be able to buy a house of their own!

    In reality, the true beneficiaries of such a subsidy scheme are the big banks and rich investors behind the subprime mortgage lenders who wrote these trick / shaky mortgages in the first place - and who now stand to take major losses as subprime lender bankruptcies turn epidemic unless the shaky mortgageholders are subsidized to avoid defaulting on their mortgages (which would otherwise result in bankruptcy recovery losses to the big banks as well as devaluing the mortgage backed bonds held by the rich investors) !

    Not to turn too far towards the political, but this result (publicly helping the 'poor', stealthily helping the 'rich', and screwing working class Americans) is consistent with the bill's sponsors.

    ~
    Last edited by Melonie; 04-11-2007 at 04:59 PM.

  4. #4
    BrunetteGoddess
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    Default Re: latest chapter on 'entitlement' mentality

    Wow. Not very good idea then; I hope this proposal doesn't go through.

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    Featured Member lunchbox's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    We would be better served passing legislation to make an uncontested foreclosure easier.

    Anyone who would qualify for this support started with no money and bad credit. If we foreclose on those homes, they are no worse off, they will have no money and bad credit. If we pay their mortgage, all we do is put money in the lenders pockets, AKA the guilty people who pushed and approved these ridiculous loans in the first place.

    Stop blaming the fed, they just control the money supply! It's the HUD's job to regulate mortgage lending.

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    Banned Melonie's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    ^^^ true, and HUD has been the single biggest reason for the proliferation of subprime mortgage lending in the first place due to their active policy of promoting minority / inner city home ownership under the direction of the Clinton administration. Making 'easy credit' mortgages available for minority first time homeowners in turn led to 'equal treatment' lawsuits, which in turn required that lenders also extend 'easy credit' mortgages to non-minorities !

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    Featured Member lunchbox's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    Mel, the ARM's resetting now were not made under Clinton's administration. One could assume Clinton's admin kept it in check. W's admin let the lenders go nuts.

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    Banned Melonie's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    ^^^ again I have to nitpick. True that many of the ARM's with teaser rates, negative amortization front ends etc. are recent inventions. However, it was the Clinton era HUD directive for Fannie Mae / Freddie Mac to underwrite minority first time homeowner loans with next to no equity and next to no credit rating that eventually opened the floodgates for other lenders to do the same ... and without those loans being confined to minorities once 'equal treatment' lawsuits were threatened.


    And if you have any doubt as to Senator Chucky's proposal to use federal tax dollars to bail out subprime morgage holders TRUE motivation, you need look no farther than ...



    In other words, virtually ALL of Senator Chucky's major political contributors have a multi-billion dollar stake in mortgage backed securities (multi-trillions if you count notional value of derivatives) !

    ~
    Last edited by Melonie; 04-12-2007 at 06:34 PM.

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    Featured Member lunchbox's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    Quote Originally Posted by Melonie View Post
    ^^^ again I have to nitpick. True that many of the ARM's with teaser rates, negative amortization front ends etc. are recent inventions. However, it was the Clinton era HUD directive for Fannie Mae / Freddie Mac to underwrite minority first time homeowner loans with next to no equity and next to no credit rating that eventually opened the floodgates for other lenders to do the same ... and without those loans being confined to minorities once 'equal treatment' lawsuits were threatened.
    It's not nitpicking we're discussing.
    And if you have any doubt as to Senator Chucky's proposal to use federal tax dollars to bail out subprime morgage holders TRUE motivation, you need look no farther than ...

    http://www.opensecrets.org/politicia...093&cycle=2002

    In other words, virtually ALL of Senator Chucky's major political contributors have a multi-billion dollar stake in mortgage backed securities (multi-trillions if you count notional value of derivatives)
    I found a better link, I give you the number three all time contributer: http://www.opensecrets.org/orgs/summ...?ID=D000000062

    Do you think congress could spend an extra $250+ billion in under two years? Cause that is what it would take just to soften the impact.

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    Banned Melonie's Avatar
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    Default Re: latest chapter on 'entitlement' mentality

    ^^^ well for a fact the realtor lobby has played both sides of the street. But ultimately the mortgage bailout lobby boils down to the gov't transferring tax money into the hands of the holders of mortgage backed securities in order to cover their otherwise certain financial losses ... and that primarily involves the huge financial institutions who repackage and sell these mortgaged backed securities, as well as very 'rich' private investors who buy these securities. Not wanting to steer too far towards the political, but those huge financial houses and very 'rich' individuals have very clearly changed their contribution habits during the last election cycle.




    Do you think congress could spend an extra $250+ billion in under two years? Cause that is what it would take just to soften the impact.
    Well, since you asked, I'll call it like I see it. Again, I would try to avoid swinging to far towards the political in Dollar Den, but in this case the politics are inseparable from the financials.

    #1 - bailing out troubled mortgageholders would clearly send a 'bad' signal to many American homeowners ... that being financially irresponsible is OK since the gov't (i.e. other US taxpayers who ARE financially responsible) will pay their bill - thus allowing the financially irresponsible homeowners to keep living in their unaffordable houses while other US taxpayers are still living in apartments. This actually has wider implications and may only serve to start a vicious circle by encouraging lenders to start writing yet another round of shaky loans, which will eventually lead to calls for yet another taxpayer bailout ! This is commonly referred to as Moral Hazard ... see

    (snip)"Moral hazard occurs when bad behavior goes unpunished. If the government is going to bail out subprime lending when it goes bad, lenders have no incentive to stop making subprime loans. If the state is going to bail out borrowers no matter how much they pay for houses, buyers will keep buying regardless of price."(snip)


    #2 - bailing out troubled mortgageholders also constitutes a bailout program for some of the richest individuals and most profitable corporations in America - meaning that in the final analysis a bailout program will allow Goldman Sachs et al to again pay $100,000+ end of year bonuses this December thanks to the tax money of responsible American taxpayers, that Bank of America stockholders will receive nice cap gains and dividends, and that very 'rich' Americans will again be able to book large cap gains (and pay low 15% long term cap gain tax rates) on the mortgage backed securities that they own - thanks to the tax money of hard working Americans. See My favorite quote from the link is that 'a rolling loan gathers no loss'.

    IMHO the major financial corporations and the very 'rich' who invested heavily in mortgage back securities should be allowed to take the lumps that sometimes goes along with the decision to make 'high risk high return' investments, instead of having their losses erased via a stealth scheme of increased taxation on middle class Americans being used to 'prop up' the value of their investments and at the same time effectively eliminate any future risk of loss. This is no different than allowing the 'very rich' to earn 8% interest on a (mortgage backed) CD and pay 15% tax on the earnings, while working people earn 4% on a regular CD and pay 30% tax on the earnings.


    #3 - bailing out troubled mortgageholders at the expense of raising income taxes on working Americans will achieve an ultimately ironic result - that hard working 'middle class' young people will be unable to afford buying a house for themselves because X% of their increased federal/state tax burden is now being used to make de-facto mortgage payments for people who already own houses that the young people will now never be able to afford. See My favorite quote from the link is "Can you spare a few thousand dollars [a year] to pay somebody else's mortgage?"

    (snip)"Under proposed bailouts, responsible people lose and have to give their money to gamblers, liars, and sleazy lenders. This is privatizing profits and socializing losses. It doesn't matter if you have been dutifully paying your monthly fixed-rate mortgage. It doesn't matter if you bought a smaller house based on what you could truly afford. And it doesn't matter if you're a renter who chose not to jump into the housing mania. Congress is proposing to make it your job to pay up for others' irresponsibility. Why don't they just tax you to cover Las Vegas gamblers' losses as well? That's pretty much what they're proposing."(snip)


    #4 - if one reads the fine print of the bailout proposal, one will quickly find that homeowner eligibility would not be evenly spread 'across the board', but in fact would be concentrated in one particular sector ... . Thus the bailout proposal, as presented, would have significant political overtones in regard to its social welfare program-like structure.

    (snip)"How did a strawberry picker earning $15,000 a year qualify for a loan of $720,000? The answer, say the experts, lies in a lending industry that got too innovative for its own good.

    Last week, a coalition of civil rights groups, including the National Council of La Raza, the Center for Responsible Lending and the NAACP, called for a national six-month moratorium on foreclosures -- after observing that the subprime crisis disproportionately affected minorities. "The point is to just take time out and provide services to families who might be vulnerable as a result of payment shock," says Janice Bowdler, senior policy analyst for housing for the National Council of La Raza, referring to the hybrid loans that begin with low fixed rates, then jump to adjustable-rate mortgages."(snip)


    ... thus the bailout proposal arguably brings us full circle right back to the 1990's HUD directive to Fannie Mae / Freddie Mac to increase home ownership among minorities living in large cities regardless of their actual ability to afford home ownership. The only real difference is that the true 'costs' of providing homes to people that really can't afford them can no longer be hidden withing the books of Fannie Mae / Freddie Mac, such that they must now propose to go directly to the public treasury for additional funding !!!


    An appropriate sum-up can be found at ...

    (snip)"One might call this the “default and delinquency belt” phenomenon. I first saw it several years ago on the near-South Side of Chicago, where a community organizer (not Barack Obama) took me on a tour of the Back of the Yards neighborhood. He’d painstakingly assembled data on mortgage defaults—and could point out which houses on which blocks were in trouble. It wasn’t hard to tell. Some had been abandoned and taken over by drug gangs. Blue collar neighbors understood their life savings, tied up in their homes, to be at risk.

    The questions arise, however, as to why such urban delinquency belts, as mapped by Journal, have come to be, and what, if anything can or should be done about them?

    The meta-narrative in the press and amongst the politicians portrays those in arrears as victims of fast-talking “predatory” salesmen who have targeted the unsophisticated. One suspects the situation is a good deal more complicated than that, that there are multiple and overlapping causes.

    One must keep in mind in discussing urban lending that it was not all that long ago (mid to late 1970s) when the concern of cities was redlining—a conscious policy of banks not to lend in urban areas. It was unappreciated by those leading protests that the banking system did not provide incentives for lending in areas where values may have been declining and borrowers were not good underwriting risks. Banks were highly regulated at the time and effectively limited in the interest rates they could set on mortgages. In such a circumstance, it made sense for banks to focus on the best credit risks in the best neighborhoods. "

    (snip)"Add to all this the Community Reinvestment Act, federal legislation enacted a generation ago in the wake of the protests against “red-lining” that required banks to make loans in so-called under-served urban areas and to under-served racial minority groups. A bank’s CRA ratings as determined by federal regulators can stand in the way of the mergers and acquisitions which have swept the industry in recent years. But bankers have little incentive to do much due diligence when it comes to meeting CRA requirements which they’ve historically viewed as a cost of doing business. Subprime lending seemed to offer a better model in which loans to minority borrowers in under-served neighborhoods could also be profitable. No wonder the tap was open so wide."(snip)

    ~
    Last edited by Melonie; 04-14-2007 at 11:26 AM.

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    Featured Member scorpio's Avatar
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    Default Re: latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailo

    Mel, FHA (HUD subsidised) loans are NOT the ones in trouble.


    If the fed bials out homeowners, then fuck it, I'm not paying my mortgage either. I'll just act like certain minorities and wait for my "aid" check to come in. Please.

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    Default Re: latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailo

    Mel, FHA (HUD subsidised) loans are NOT the ones in trouble.
    I didn't say they were. What I DID say was that HUD policy of directing Fannie Mae / Freddie Mac to start extending mortgage acceptance on very loose credit terms to minority / inner city homeowners is the seed from which the entire subprime lending industry has grown.


    If the fed bials out homeowners, then fuck it, I'm not paying my mortgage either. I'll just act like certain minorities and wait for my "aid" check to come in.
    unfortunately, this would only work if you have spent all of your money instead of saving / investing. If you have (US) assets, you're screwed.

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    Featured Member lunchbox's Avatar
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    Default Re: latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailo

    OMG, a journalist without a bleeding heart:
    http://www.bloomberg.com/apps/news?p...d=akbLYcPz6UNM

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    Default Re: latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailo

    ^^^ a perfect description of the subprime mortgage situation, with the sugar coating and political pandering removed ! Nice find !

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    Featured Member lunchbox's Avatar
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    Default Re: latest chapter on 'entitlement' mentality a.k.a. taxpayer Subprime Mortgage Bailo

    Too late for bailouts (from a Dem):

    http://www.reuters.com/article/ousiv...7?pageNumber=1

    You might recognize Barney as a frequent guest on Bill Maher, very outspoken, and has a funny voice. Personally, I like him.

    (EDIT) a little more in depth coverage:
    http://www.economicpolicymonitor.com...borrowers.html
    Last edited by lunchbox; 04-17-2007 at 06:09 PM.

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