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Dennis Hammond of Lakewood writes:

For the most part I have the utmost respect for Economist Thomas Sowell. He’s right on in his piece in Wednesday’s NEWS—- “Government is the culprit” with regard to the sky-rocketing real estate foreclosure rates- but for the completely wrong reason.
Sowell states in referring to the usual bogy man- Sub Prime and interest only loan products- that “Such risky mortgage loans were rare just a few years ago” but misses the forest for the trees when omitting the dirty little secret that most foreclosed properties are insured by YOU and ME in the form of FHA and VA insured mortgages. For the most part privately insured loans require a factor rarely present in government loans: EQUITY and folks with equity and credit worth saving don’t go into foreclosure, they SELL. With regard to government insured mortgages- TRANSLATION: subsidized housing for the poor, such EQUITY is RARELY present. What was RARE just a few years ago was the non existant qualifying criteria and “underwriting” offered by GOVERNMENT INSURED mortages. Effectively, ZERO DOWN government products, Grant programs, Community homebuyer programs, relaxed/non existant credit history and cash reserve requirements and other tricks or flat-out taxpayer subsidized give-a-ways, to allow borrowers, who in the past would NEVER have qualified for a mortgage, to BUY. And subsequently to go into to foreclosure— many without EVER MAKING A MORTGAGE PAYMENT. And who picks up the cash on the taxpayers dime? Realtors and lenders who “CHURN” the local inventory utilizing every person with a pulse (which also happens to be the requirement for qualifying for an FHA loan) with an inclination to be a homeowner. The Forth rail of politics is the notion that EVERYONE should own a home, even if the taxpayer has to finance it for them. The Subprime industry absolutely misjudged the market and hense decided to cut and run and preserve their significant profits, VA and FHA don’t have to cut and run- they have the full faith and honor of the American taxpayer who has NO choice but to pick up the tab for these endless foreclosure deficiencies. That’s the REAL story about residential REAL estate finance that nobody wants to talk about and as usual the taypayer takes it in the shorts.

This letter has not been edited.

READER COMMENTS

Go visit a website regarding people unhappy with their subprime lenders such as Ameriquest and you will find most of them were lied to and mislead to get the papers signed. Understandably people are responsible for loans and mortgages they get into but when they are purposely lied to this is when people need advocates. Ameriquest used tactics such as paperwork faxed to the client stating they would have no pre payment penalty for early sales of the house. Well, the original contract has this pre payment penalty in it which makes the faxed paperwork worthless. Also they would mislead the client into believing their taxes and insurance were included in their payment, they would be for the first few months and then would be the clients responsibility after the time limit which was never explained. Now the only way to recoup this is to go to court and sue them however most can't afford this. Fotunately there are several civil suits against Aeriquest that you can sign onto and if won you can recieve compensation. This is one of the reasons for the high forclosure rate, sublime lenders out and out lying to their clients to get the paperwork signed.

Once upon a time, when the government actually regulated interest rate caps, mortgage loans weren't that easy to come by.

That all changed when the free marketeers lobbied for interest rate caps to be set by the states...thus, preparing the stage for the subprime and interest only products we see today that have derailed the housing industry.

So yeah, I guess in a way government is to blame for the high rate of foreclosures we're now seeing by caving in to the free marketeers' demands to deregulate.

Of course, I realize this isn't what the letter writer meant at all...or would ever acknowledge.

Nah mytwosense who would believe that the movement to neuter government would be led by corporations and business interests eager to get out from under governmental regulation? Certainly not the Kool-Aid drinking Halliburton supporting Bush boot lickers.

Good letter, Dennis. Pretty accurate, as well.

Mike, if the situation you described is true and I have no reason to believe that it is not, there should be some class action lawsuits for folks to join. Fraud in the lending industry should be severely punished.

I do, however, know of a number of folks that never would have qualified under the old lender rules that qualified for homes which were way over their heads and their ability to pay for them. A number of those who I know were not only irresponsible but woefully ignorant on financial matters and took on adjustable rate mortgages and other instruments that were created to prey upon just that group of people. Needless to say, all of them lost their homes in rather short order.

With a mortgage comes responsibility. The lending industry has only itself to blame. They got greedy and lent money to those they shouldn't have. Home ownership is not a right without responsibilities.

RU Serious, I do agree with you that there were plenty of people who through willful ignorance got themselves into something they couldn't afford, and under normal circumstance would never have qualified for the loans. I'm just trying to make a point that not all were on the up and up on the other end either...

The Democrats are trying to draft legislation to bail out the predatory sub-prime lenders with tax payer money. I don't think tax payers should be bailing out private lenders who ripped off millions of people and have to take most of the blame for the high foreclosure rates in this country.

Example.My brother and his wife who together have the IQ of 2 were able to get a $180,000 loan and then a piggy back 2nd mortgage to pay the $8,000 in closing cost.
He has claimed bankruptsy 2 times had 4 cars repoed,was unemployed,has never kept a job for more than 5 months,and his wife has been collecting $1,800 a month for her and her "slow" children since they were born.They moved into the house then my brother was allowed to get two new loans for 2 new Grand Ams fully loaded.They were in foreclosure in 3 months and both cars were repoed.Social Security found out he was making money and cut her Social Security check amount. So then they had to move,she then started to claim they were getting a divorce so she could get her free money back and then started getting foodstamps and money after claiming they were getting a divorce all the while they were still together and he found a job making over $2,000 a month.they also were getting their gas and electric paid by Leap. Nice huh?

Don't worry I turned them into all the right agencies. I hate people who take advantage of the system even if they are family.Tax payers shouldn't be paying for scumbags like these two.

The Democrats are trying to draft legislation to bail out the predatory sub-prime lenders with tax payer money. If this is true, I want my voice to be heard loud and clear that there is no way I support this. So can you please direct us to your source for this information, so we can find out who to call or write?

"mytwosense"

I can't provide you with a specific referral, I can just confirm that I heard the same news broadcast -- radio -- that referred to "a Senate Committee" planned on looking into it after recess.

It doesn't matter which party is in power or heading the committee in question; it's simply a case of politicians responding to the needs of the big money financial community.

Look at the newly printed paper money dumped into the markets last week to shore up the stock market. The credit market is being squeezed hard. The government's plunge protection team (PPP) galloped in this past week and dumped almost $70 billion "dollars" into the banking system to save themselves.

The subprime mortgage market free fall has been building for years. These are loans made to people who have less than ideal credit - all being done during a housing market that began it's slump almost two years ago.

On August 9, 2007, the privately owned Federal Reserve pumped "$24 billion in temporary reserves to the banking system amid an increase in demand for cash from banks roiled by U.S. subprime loan losses." The next day, the FED infused the dying patient on the operating table three different injections: $38 billion. Some say this won't be nearly enough to stop the hemorrhaging. This latest "rescue" by the central bank is going to be short lived and many experts not on the government's payroll predict the FED will have to reverse it's decision last week to leave interest rates alone and instead, announce an emergency drop in rates. The wise folks over at urbansurvival.com said it best last Friday: "When up to a third of a trillion dollars being dumped into financial market's in 36-hours doesn't stem the tide, even the financially ignorant can sense something has changed. That's pouring money into the financial system at a rate equivalent to all of Canada's Annual GDP every four days. And what did we get? A 31-point Dow loss anyway!"

The government announced on August 10, 2007, that Freddie Mac and Fannie Mae will not be allowed to acquire any more mortgage debt. Banks and lending institutions have for too long been making bad loans and despite the gigantic warnings signs, greed carried them through the years, but now foreclosures packages are spitting out more paper than the Pentagon.

As much as you may be against a"bail out", mytwosense, it's already started and will only intensify. Hey, look at it optimistically -- your tax dollars being invested to prop up two things at once: corrupt politicians and the private financial system!

Long-standing government subsidies of real estate via the tax code has also systematically and artificially spurred demand, to the point that real estate prices far outstrip what they would be in a market free of government interference. This upward pressure on prices further aggravated the situation, and contributed to this "crisis."

Don't forget all those who "invest" in property.

Seems like the last price spike started with the flipping trend over the last few years....

Hammond has declared bankruptcy and has never owned any property

President Bush has already said he will veto a bail out.

AMEM

Bush said he would veto a direct subsidy, or reimbursement to the actual lenders. The bailout is already underway thru the massive infusion of capital into the markets. Since when can we trust a politician to not prop up big business. His veto sound bite was just that -- a sound bite.

Read what Trinity posted above. The money is already flowing to stabilize the credit markets.

Mr. Hammond is dead wrong on the VA loans. He is somewhat correct on FHA foreclosures, but subprimes still have the highest level of foreclosures. FHA and VA do not allow subprime loans and FHA is for low income. Prime loans had the LOWEST rate of foreclosure and VA had the SECOND LOWEST rate of foreclosure.

See the below expert article:

http://www.mortgagebankers.org/NewsandMedia/PressCenter/50974.htm

By the way, VA has higher qualifications than most loans and yes it allows zero down but has much stiffer rules to obtain one including higher income levels than FHA.

Some people are actually having fun with this.

I remember reading in the Rocky where one illegal was bragging to his neighbor that the home he was living in was the third he acquired with false papers and false ID. He just keeps moving on......

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