Help us find Annie
Elijah, Elijah, ELIJAH!!!
You can't look at a photo of Congressman Elijah Cummings without getting the immediate impression that he's a sweet, gentle soul. I admire that in a person, but when you try to project some of those qualities into government policies, the result is invariably tyranny.
Mr. Cummings' latest newsletter to us constituents arrived here on September 28, contained the following statement (redacted here):
There are two wrongheaded assumptions in Cummings' message.Fighting the Fallout of the Subprime Mortgage CrisisWe are in the midst of a serious national crisis in the housing market—particularly where subprime mortgages, geared toward borrowers with low credit scores, are concerned. Subprime loans are not inherently dangerous, but in the wake of an explosion of the subprime market, predatory practices within the industry have turned the American Dream of home ownership into more of a nightmare. The effects of this crisis are not just forcing millions of Americans into homelessness;...This problem does not just hurt the families who are losing their homes, though. When a home goes into foreclosure, it drops the property value of the surrounding homes in the neighborhood-- sometimes reducing values to levels below what homeowners paid for them. Foreclosures have cost the City of Baltimore alone roughly $1.8 billion in reduced property values in the past five years.
Last week, I joined my colleagues in passing H.R. 1852, a bill to revitalize the Federal Housing Administration, allowing it to offer more services to borrowers—including those who are forced to take out subprime loans. This is a good start in fixing the crisis, but it is not nearly enough.After hearing testimony last week before the Joint Economic Committee, on which I sit, I decided to find a short-term solution to help ease the havoc being wreaked by the subprime market. I am in the process of developing two pieces of legislation. The first will make one simple change to the bankruptcy code...The second will require a one-page, user-friendly document to be provided to buyers during the closing of a home sale. This document will provide essential information outlining the terms of the buyer’s mortgage to help prevent users with adjustable rate mortgages from being blindsided by unexpected ballooning payments.
Second, one of the reasons buyers get "blindsided" in the process of closing a home sale is that they are already assaulted by scores of pages of government boilerplate at the closing table, and rarely if ever is a buyer given the opportunity to peruse and absorb this stuff at his own pace. He's simply told, "just sign this; it's another government requirement, and it really doesn't mean anything to you."
Mr. Cummings,
As much as I might admire your compassion for people who have gotten themselves into a financial bind, the federal government has no cause to stick its nose farther into the subprime mortgage mess.
Having been a real estate salesman for six years, about a decade ago, I understand the degree to which lenders coerced people to overextend themselves financially with the loans they've made under the rubric "subprime." However, I also know that lenders have long been under pressure from the Equal Housing Opportunity crowd to approve mortgage loans to minority applicants, even when they are marginally qualified. When I was selling houses, there was a subtle, but palpable pressure to make certain that any minority prospect got qualified for a loan on the house he or she chose, if the numbers were even remotely close. The result of this reverse-discrimination practice is that the proportion of foreclosures among minority home buyers have always been higher.
How this led to the sub-prime mess, I am not quite certain. But I do know several things that may not have occurred to you, in your rush to "do something."
Lenders invariably lose more money on foreclosures than on "work outs," where the terms of a loan are renegotiated. One one commercial property I owned, the cash flow from rents was at least $15,000 a year less than my expenses, because of chronic vacancy problems, bad debts from deadbeat tenants, and maintenance that the former owner had neglected to perform. Rather than reach for bankruptcy, I sought out the one tenant whose business was growing the most and negotiated a sale of the property to him, at a price just high enough to keep me from paying money at the settlement table. Knowing the sale was in the works, I was able to persuade the mortgage lender to accept reduced payments for several months, in anticipation of the payoff of the loan. Everyone walked away happy. Me, less than some other parties, but nevertheless I was able to close that chapter of my life on my own terms.
THUS, lenders who have portfolios of sub-prime loans ought to be encouraged to renegotiate these loans, rather than foreclose. I have heard it said by knowledgeable people that the entire problem could be rectified by renegotiating these loans, extending the term of the loan to 40 or 50 years. With the cost of housing increasing faster than the average income, this is bound to happen in the marketplace anyway.
On the other hand, to use government funds (MY money) to help out either a buyer who was foolish enough to get too deeply in debt, or a lender who was greedy or foolish enough to lend to a marginally qualified prospect, is grossly unfair to me, and others like me who have lived a financially conservative life. I've been in the same house for 32 years, and it is paid off. The newest of our two automobiles is a 1999 model, and we have bought the last three vehicles we've owned cash. We keep a motor vehicle an average of eleven years or more.
To increase taxes in any way, in sympathy with these befuddled lenders and buyers would be to punish people like me for having lived prudently all our lives. It is a redistribution of wealth, which in my opinion is NOT within the scope of government, nor is it desirable.
I DO wish you would disabuse yourself of the notion that every time a person stumbles, someone from the government ought to be there to help them. Because those who stumble and are saved by something other than their own effort and sacrifice do not learn what they need to know to avoid stumbling again. Thus, by your good intentions, the government stifles people's growth.
As always,
Stan M-------
I managed to avoid using the phrase "redistributionist bullshit," but just barely.
And today I received a commentary from the Center for Individual Freedom, entitled "Why A Subprime Bailout would be Unfair and Unwise." I think this piece makes an even better case for government non-action than my letter.