Tuesday, May 20, 2008

Ax for Congress

Awhile back, I implored you to write your local congress person about impending legislation that would allow a 4-year retro tax break to big builders and possibly allow bankruptcy court judges to arbitrarily assign new loans to people in foreclosure or delinquency. I asked my congressman if I would be first in line to recoup lost equity in my home since I have been paying on time all along. Shouldn't I get a lower rate with better terms first since I've already spent the most? To his credit, Robert Wexler responded with a thorough and non-canned response. Here it is:

Thank you for contacting my office regarding legislation that provides tax cuts to homebuilders, rewrites loans, or provides a bailout to subprime mortgage borrowers. I appreciate your views on these important issues.

Since the end of last summer, more and more homeowners in our country have been unable to make their mortgage payments and have been losing their homes to foreclosure. In fact, the number of foreclosures in our country has hit an all time high. To protect homeowners from losing their homes to foreclosure, the Bush Administration has implemented a program called "Hope Now." Hope Now requests that mortgage lenders voluntarily re-negotiate their loans with homeowners. I do not believe that a voluntary program alone is a workable solution for homeowners facing foreclosure.

Currently, the mortgage industry has very little regulation. I strongly support legislation that increases regulations on the mortgage industry. Indeed, mortgage lenders need to be required to seek alternatives to foreclosure, including: altering repayment plans, loan modifications, short sales, and other options. I firmly believe that foreclosure should only proceed as a last resort, after all available options have been exhausted. Moreover, if a lender does not take action to voluntarily modify a mortgage repayment plan, then I support giving bankruptcy judges the ability to modify the mortgage repayment plan. I firmly believe that if lenders refuse to re-negotiate loans, then the courts need to step in to save people from losing their homes. The threat of the courts taking action to modify repayment schedules would encourage lenders to voluntarily re-negotiate with homeowners. In addition, homeowners that are late on their mortgage repayments should be referred to qualified housing counselors to provide assistance. Proactive and robust action is the best way to address our Nation's mortgage crisis. Yet, I do not believe that the government should bailout individuals who have made very poor loan decisions. Please be assured that I will keep your views in mind as this issue is debated in the House Financial Services Committee and on the floor of the U.S. House of Representatives.

Thank you again for taking the time to write. Please feel free to contact me with any additional questions you may have or anytime I may be of assistance to you. If you would like to be updated on these and other issues, please stop by my website (www.wexler.house.gov) and sign up for my electronic newsletter. I hope you will find these tools to be valuable resources in keeping up with events in Washington and South Florida.

With warm regards,
Robert Wexler
Member of Congress

Thorough yes, the answer I was looking for, no. Basically I am one of many, but those many might get foreclosed on. And while I will be "kept in mind," re-election will be top of mind and pushing legislation to help his constituents will win out. "Yet, I do not believe that the government should bailout individuals who have made very poor loan decisions." But, that's all of the people you just described helping, isn't it?

I'm rolling now, so I can't be stopped. Let's take another shot at housing. Congress is feverishly attempting to push through legislation that allows Freddie and Fannie to buy up gobs of mortgages to stem foreclosures in America's credit-crunch shell game. Never mind that these companies continue to bleed money. Never mind that the falling knife of home ownership is accelerating, not abating. Ever the tactful CEO, Bob Toll recently said, "Most buyers are canceling because "they go to their friends and neighbors and say, 'We just bought a new home,' and everybody says, 'What, are you crazy? Prices are dropping,' " according to the chief executive."

In a recent article in The Economist, European banks were put under the microscope to see why they've been hit so hard by the crisis. In a word, leverage. I love this following assertion. "At the same time Credit Suisse's proprietary risk model, designed to simulate the effect of crises, signalled a problem with the amount of risk-adjusted capital absorbed by its portfolio of leveraged loans." Wow, can I have access to that proprietary model, the same one that didn't kick in before $37 billion were lost. Very kind, indeed.

Speaking of models that have failed in the past, Mr. Myron Scholes is back. You may remember Mr. Scholes of Black-Scholes fame, Nobel Prize winner for his "proprietary" options valuation model. Or, you may remember Mr. Scholes for his role in hedge fund Long-Term Capital management, whose crash in 1998 almost brought our stock market to its knees had it not been for another bailout. Well, wait a few years and poke out the turtle. Myron was recently interviewed on Bloomberg and said, "In my view, this is probably as bad or worse than the 1989-1990 crisis and may even rival the worst crisis we've seen since the end of the Second World War.''

Hey, we're not all gloom and doom here. Not all. But the editor of The Gloom, Boom, and Doom
Report Marc Faber agrees with me on the sad state of retail. "I personally think we are just starting the credit crunch and it is going to be worse," he said. "I think the economy really stinks and the next sector to be hit, in America and elsewhere, is retail." Retail. Yes. I've heard that before, from myself! Home Depot and Lowe's got trounced this week. 60% drop in earnings for HD and both companies see a bleak consumer outlook going forward.

I think that's enough carnage for now. Cummins dropped 3% yesterday, an appearance in the 60s and I'll look to buy. Will continue to research Eaton and its hybrid diesel....





Tiger Coach said...

Another excellent post. Unfortunately, for every letter that was received like yours, there were two or three "mercy letters" asking for a bailout.

As a rule of thumb governments job should be to regulate not prop up markets. Sometimes a general "blood-letting" gets rid of the businesses or practices which weaken markets to begin with.

Interesting enough, regulators...politicians...and bankers had to realize this was a problem waiting to happen. A friend told me that it was easier to get a home loan than it was a car loan!

Enough of this horseplay, I want to see some of these crooks who gave false appraisals...out-right lied on mortgage applications when it came to income verification, and the speculators get their just deserts.

I have a friend in Aurora..who lived (past-tense) in a house that was appraised at 600K. A couple of foreclosures in the neighborhood and it was just reappraised at 380k. Meanwhile he has taken a home equity loan about to buy Italian marble...many upgrades...etc... Chances are this is happening in neighborhoods all over the U.S...

I'll see what I can find out about the Eaton Hybrid...

AX said...

Has already passed through my neighborhood and SD,LA, LV, and Phoenix, tell your buddy to slow down on the granite and think about how many houses in Aurora will ever sell for $600k in the next 10 years.

I agree with you about the congressman, he feels for me, but not really...

Anonymous said...


Tiger got it right! Governments job should be to regulate and not to "prop up markets".

Once again the govt.(with our tax dollars)will bail out those who lied, took a risk and got burned, and screw the majority of us in good standing.

Hey, come to think of it I kind of like this "new" nanny state mentality. Maybe if I invest in stocks and take a risk and it bombs the govt. will bail me out.

I wonder how many "mercy letters" it would take for that to happen?