Obama's Mortgage Police

This summer the White House unveiled "President Obama's Plan for a Better Foundation for Middle Class Homeownership," which is so amazing it merits a second slogan, the "Better Bargain." A cutesy infographic explains the Plan, using language that seems out of place among Obama Administration statists:

"Put private capital at the center of the mortgage system"

"NO MORE TAXPAYER BAILOUTS!"

"End Fannie and Freddie's failed business model"

The White House explains further:

[President Obama] made it clear that we can't go back to the same bubble-and burst housing system that caused the financial crisis. We need a rock-solid foundation for financing homeownership with a bigger role for the private sector, where taxpayers aren't on the hook for the irresponsible behavior or bad decisions of financial institutions.

Obama of course has not suddenly become a champion of the private sector. He remains at heart a leftist with contempt for "fat cat bankers." Why then would he want to create a "bigger role for the private sector"?

When a socialist government nationalizes private industry, it gains control, but it is also forced to take responsibility for the financial losses of the industry it now owns. For example, British Leyland was nationalized in 1975 and, writes the New York Times, "the company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the '70s and '80s before going out of business."

Obama's strategy here is more devious: he takes control by expanding regulatory power, but then would like to absolve himself of any responsibility when the costs of red tape and defaults on mandated subprime mortgages generate losses for these private institutions. It's the institutional enactment of the Limbaugh theorem, the strategies that allow Obama to escape blame for his failures.

Obama's regulatory muscle was recently beefed up with the creation ofthe Consumer Financial Protection Bureau, a new independent federal agency whose mission in part is directed at "supervising" mortgage lending. A recent email from the White House cites the CFPB as one of two "resources we've already helped make available" to protect homeowners: "The Consumer Financial Protection Bureau is looking out for homeowners who might be victims of predatory lending or unfair consumer practices."

The bureau has expanded rapidly since its establishment under the Dodd-Frank Act in 2011. Its 2012 budget of $299 million and 831 full time employees rose to $541 million and 1,214 FTEs in 2013 as new offices came online. The 2014 budget remains steady at $497 million, with employment rising to 1,545.

A recent Investors Business Daily op-ed describes how "Socialists Designed Obama's Credit Watchdog Agency," and the anti-capitalism bias of the agency is clear. Of course, the point of "consumer protection" is to protect consumers from unscrupulous businesses, but the agency's literature is aggressively anti-business, acting as if Obama's accusation of "irresponsible behavior or bad decisions of financial institutions" is the norm rather than the exception.

Following are some excerpts from the CFPB website, of the Bureau's "investments" (i.e., "spending") and goals:

• The CFPB's Supervision, Enforcement, and Fair Lending Offices collaborate to conduct supervisory activities at bank and nonbank institutions. [...]

• The Bureau's supervision activities range from assessments of the institution's fair lending compliance management systems to in-depth reviews of products or lending activities that may pose heightened fair lending risks to consumers. [...]

• Maintain and increase capacity of tools that obtain, process, and analyze evidence received in enforcement investigations and enable the Bureau to bring enforcement actions to address violations of consumer financial protection laws. [...]

• Effectively initiate supervisory activities at financial services institutions under the CFPB's jurisdiction to determine compliance with the Federal fair lending laws, including the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA). [...]

• Cooperate and share information with its partners in local, state, and federal law enforcement as part of its efforts to protect consumers, deter wrongdoers, and build a better marketplace. [...]

• Hire additional staff to expand the Bureau's capacity to focus on risks to consumers in the policies and practices of consumer financial providers; analyze available data on the activities of providers, on the markets in which they operate, and on the risks to consumers; and investigate and take actions to address potential violations of consumer laws.

These activities might seem reasonable if, as Obama pretends,the federal government is simply protecting honest citizens from loan sharks.The power given to these 1,545 investigators however is sweeping and completely unchecked, and the vast majority of the banks and mortgage companies they are authorized to investigate are honest businesses. Not long ago in fact, bankers were the acme of respectability and probity, from the idealistic Jimmy Stewart at the Bailey Building and Loan to the boring bank president in every town in America who supported a local Little League team.

There is of course no mention of any federal program to protect mortgage companies from the schemes of fraudulent customers, which is not an imaginary problem; according to Criminal Intelligence Service Canada, "Mortgage fraud schemes range widely in terms of sophistication and complexity," and include "fraud to further other criminal activities; fraud for profit; and fraud for shelter."

It's unclear how Obama will "end Fannie and Freddie's failed business model" and shift mortgages to the private sector, given that in 2012 the two agencies held $5.1 trillion in mortgage assets, but Obama has never fretted over details. In fact, while he attacks "taxpayer bailouts" from one side of his mouth, he brags about his own bailout programs administered by the Department of Treasury and HUD: "MakingHomeAffordable.gov is there to help get you mortgage relief and avoid foreclosure."

The "Making Home Affordable" programs include the following subsidiaries:

the Home Affordable Modification Program (HAMP)

the Home Affordable Refinance Program (HARP)

Second Lien Modification Program (2MP)

Home Affordable Unemployment Program (UP)

 Home Affordable Foreclosure Alternatives Program (HAFA)

(Did English speakers come up with these names?)

Although $75 billion was allocated to MHA under TARP in 2009, Treasury was only able to give out $45.6 billion, leading Mother Jones to call it the "Worst $75 Billion Investment Ever." Despite the program's failures and the "recovery" in the housing market, in 2012 the program was extended through 2015. Treasury reports, "Additional programs were subsequently rolled out to expand the program reach," including the Hardest Hit Fund (HHF). Monthly MHA transactions have increased steadily, from 1,191 in March 2012 to 1,703 in June 2013.

The whole enterprise feels like a replay of the Community Reinvestment Act, which punished banks for "redlining," ultimately contributing to the subprime meltdown. One might ask if Obama learned nothing from the last financial crisis, and the answer is no. The fault in his eyes is that government lacked regulatory power and made insufficient "investments" -- problems he is actively addressing.

This summer the White House unveiled "President Obama's Plan for a Better Foundation for Middle Class Homeownership," which is so amazing it merits a second slogan, the "Better Bargain." A cutesy infographic explains the Plan, using language that seems out of place among Obama Administration statists:

"Put private capital at the center of the mortgage system"

"NO MORE TAXPAYER BAILOUTS!"

"End Fannie and Freddie's failed business model"

The White House explains further:

[President Obama] made it clear that we can't go back to the same bubble-and burst housing system that caused the financial crisis. We need a rock-solid foundation for financing homeownership with a bigger role for the private sector, where taxpayers aren't on the hook for the irresponsible behavior or bad decisions of financial institutions.

Obama of course has not suddenly become a champion of the private sector. He remains at heart a leftist with contempt for "fat cat bankers." Why then would he want to create a "bigger role for the private sector"?

When a socialist government nationalizes private industry, it gains control, but it is also forced to take responsibility for the financial losses of the industry it now owns. For example, British Leyland was nationalized in 1975 and, writes the New York Times, "the company that went through £11 billion of inflation-adjusted British taxpayer money, or $16.5 billion, in the '70s and '80s before going out of business."

Obama's strategy here is more devious: he takes control by expanding regulatory power, but then would like to absolve himself of any responsibility when the costs of red tape and defaults on mandated subprime mortgages generate losses for these private institutions. It's the institutional enactment of the Limbaugh theorem, the strategies that allow Obama to escape blame for his failures.

Obama's regulatory muscle was recently beefed up with the creation ofthe Consumer Financial Protection Bureau, a new independent federal agency whose mission in part is directed at "supervising" mortgage lending. A recent email from the White House cites the CFPB as one of two "resources we've already helped make available" to protect homeowners: "The Consumer Financial Protection Bureau is looking out for homeowners who might be victims of predatory lending or unfair consumer practices."

The bureau has expanded rapidly since its establishment under the Dodd-Frank Act in 2011. Its 2012 budget of $299 million and 831 full time employees rose to $541 million and 1,214 FTEs in 2013 as new offices came online. The 2014 budget remains steady at $497 million, with employment rising to 1,545.

A recent Investors Business Daily op-ed describes how "Socialists Designed Obama's Credit Watchdog Agency," and the anti-capitalism bias of the agency is clear. Of course, the point of "consumer protection" is to protect consumers from unscrupulous businesses, but the agency's literature is aggressively anti-business, acting as if Obama's accusation of "irresponsible behavior or bad decisions of financial institutions" is the norm rather than the exception.

Following are some excerpts from the CFPB website, of the Bureau's "investments" (i.e., "spending") and goals:

• The CFPB's Supervision, Enforcement, and Fair Lending Offices collaborate to conduct supervisory activities at bank and nonbank institutions. [...]

• The Bureau's supervision activities range from assessments of the institution's fair lending compliance management systems to in-depth reviews of products or lending activities that may pose heightened fair lending risks to consumers. [...]

• Maintain and increase capacity of tools that obtain, process, and analyze evidence received in enforcement investigations and enable the Bureau to bring enforcement actions to address violations of consumer financial protection laws. [...]

• Effectively initiate supervisory activities at financial services institutions under the CFPB's jurisdiction to determine compliance with the Federal fair lending laws, including the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA). [...]

• Cooperate and share information with its partners in local, state, and federal law enforcement as part of its efforts to protect consumers, deter wrongdoers, and build a better marketplace. [...]

• Hire additional staff to expand the Bureau's capacity to focus on risks to consumers in the policies and practices of consumer financial providers; analyze available data on the activities of providers, on the markets in which they operate, and on the risks to consumers; and investigate and take actions to address potential violations of consumer laws.

These activities might seem reasonable if, as Obama pretends,the federal government is simply protecting honest citizens from loan sharks.The power given to these 1,545 investigators however is sweeping and completely unchecked, and the vast majority of the banks and mortgage companies they are authorized to investigate are honest businesses. Not long ago in fact, bankers were the acme of respectability and probity, from the idealistic Jimmy Stewart at the Bailey Building and Loan to the boring bank president in every town in America who supported a local Little League team.

There is of course no mention of any federal program to protect mortgage companies from the schemes of fraudulent customers, which is not an imaginary problem; according to Criminal Intelligence Service Canada, "Mortgage fraud schemes range widely in terms of sophistication and complexity," and include "fraud to further other criminal activities; fraud for profit; and fraud for shelter."

It's unclear how Obama will "end Fannie and Freddie's failed business model" and shift mortgages to the private sector, given that in 2012 the two agencies held $5.1 trillion in mortgage assets, but Obama has never fretted over details. In fact, while he attacks "taxpayer bailouts" from one side of his mouth, he brags about his own bailout programs administered by the Department of Treasury and HUD: "MakingHomeAffordable.gov is there to help get you mortgage relief and avoid foreclosure."

The "Making Home Affordable" programs include the following subsidiaries:

the Home Affordable Modification Program (HAMP)

the Home Affordable Refinance Program (HARP)

Second Lien Modification Program (2MP)

Home Affordable Unemployment Program (UP)

 Home Affordable Foreclosure Alternatives Program (HAFA)

(Did English speakers come up with these names?)

Although $75 billion was allocated to MHA under TARP in 2009, Treasury was only able to give out $45.6 billion, leading Mother Jones to call it the "Worst $75 Billion Investment Ever." Despite the program's failures and the "recovery" in the housing market, in 2012 the program was extended through 2015. Treasury reports, "Additional programs were subsequently rolled out to expand the program reach," including the Hardest Hit Fund (HHF). Monthly MHA transactions have increased steadily, from 1,191 in March 2012 to 1,703 in June 2013.

The whole enterprise feels like a replay of the Community Reinvestment Act, which punished banks for "redlining," ultimately contributing to the subprime meltdown. One might ask if Obama learned nothing from the last financial crisis, and the answer is no. The fault in his eyes is that government lacked regulatory power and made insufficient "investments" -- problems he is actively addressing.

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