It is more common everyday. A man buys a house, the market collapses and suddenly his house is worth less than the mortgage, then he loses his job until, as a single father, he finds himself in foreclosure with no place to raise his two preteen daughters. It’s a case made for the Occupy Wall Street movement to swoop in and right wrongs, right? Maybe not because the OWSers in New York stole this poor guy’s home away from him in order to give it to one of their own members. Confused? Read on.

A Brooklyn man living in an apartment with his two daughters was alerted to the fact that his in-foreclosure-home had been broken into and occupied by Occupiers, as in Occupy Wall Street activists. When he rushed to his home he found a group of strangers that had broken into his home claiming to have “reclaimed” the house and given it to another family.

“They’re trying to take a house and say the bank is robbing the people because the mortgage is too high — so contact the owner!” fumed Wise Ahadzi, 28, who owns the home at 702 Vermont St. in East New York.

Apparently Ahadzi had bought the house in 2007 for the princely sum of $424,500 but during the housing bubble of 2009 the house ended up being worth only half that. Then, when he lost his job and got behind on the mortgage, the bank foreclosed on the property.

Enter — illegally, mind you — Occupy Wall Streeters who discovered the home in foreclosure and decided that they’d steal it away from “the bank” with the ostensible goal of helping the needy.

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In all this debate, I fear both parties have missed a critical point.

Both versions of this bill impose a permanent new tax on every mortgage backed by Fannie Mae and Freddie Mac.

To pay for an additional two months of tax relief under the Senate version or 12 months under the House version, more than $3,000 of new taxes will be imposed on every $150,000 mortgage backed by Fannie or Freddie.

A family taking out a $250,000 mortgage will pay $5,000 more in taxes–directly and solely because of this bill– hidden in their future mortgage payments.

This is atrocious public policy.

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From Bloomberg:

Daniel Mudd, the former chief executive officer of Fannie Mae, andRichard Syron, ex-CEO of Freddie Mac, were sued by the U.S. Securities and Exchange Commission for understating by hundreds of billions of dollars the subprime loans held by the agencies.

The lawsuits filed today in Manhattan federal court were followed by an SEC statement that it had entered into non- prosecution agreements with each lender. Fannie Mae, the government-sponsored enterprise which issues almost half of all mortgage-backed securities, and Freddie Mac, the McLean, Virginia-based mortgage-finance company, had “agreed to accept responsibility” for their conduct, the SEC said.

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Washington public policy is replete with examples of government regulators thinking they know best, imposing new government rules that then exacerbate the existing problems. As things become worse, they blame the free market and call for more government regulations to fix the burdens they created.  Of course, just as it was the first time, the cure is worse than the disease. And the vicious cycle continues.

Massachusetts Senate candidate Elizabeth Warren could be the poster child for the law of unintended consequences.  Warren’s career was built upon advocacy of government regulations that created bigger problems than those she initially addressed.  As the problems compound, so does her call for even more government red tape.

All of this mader her a hero to the progressive community, a Harvard professor, an advisor to the president and a creator of a new regulation-pushing agency of government known as the Consumer Financial Protection Bureau (CFPB).  Maybe once, she will get something right but don’t hold your breath. The housing market collapse is a case in point.

In 1994, President Clinton and his cronies laid the groundwork for the creation of the Housing Bubble and the Wall Street crisis a decade later.  The Investors Business Daily uncovered a “smoking gun” memo that declared war on a near invisible enemy – racism is mortgage lending:

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From Investors Business Daily:

While not blameless, Wall Street is an easy scapegoat. And investment houses that made billions slicing and dicing mortgages into CDOs, derivatives, credit default swaps and other exotic paper are easy to demonize. But the problem wasn’t these financial instruments. Or even the obscene profits they generated. Mortgage-backed securities were nothing new, and we’ve always had speculation in the market.

The problem was the underlying assets: low-quality mortgages. We’ve never had so many junk home-loans poisoning the financial well before. And who poisoned the well? Washington and its affordable-housing policies.

It was Washington that declared prudent home-lending standards racist and gutted traditional underwriting rules in the name of diversity. It was government that created the risk on Main Street.

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From The Hill:

In Thursday’s retirement announcement, [U.S. Rep Dennis] Cardoza said he’s “dismayed by the administration’s failure to understand and effectively address the current housing foreclosure crisis.”

“Home foreclosures are destroying communities and crushing our economy,” he said, “and the administration’s inaction is infuriating.”

Cardoza also took a shot at the news media for what he characterized as a “general lack of attention to moderate members of Congress.”

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From the Associated Press:

Sales of new homes fell to a six-month low in August. The fourth straight monthly decline during the peak buying season suggests the housing market is years away from a recovery.

The Commerce Department said Monday that new-home sales fell 2.3 percent to a seasonally adjusted annual rate of 295,000. That’s less than half the roughly 700,000 that economists say must be sold to sustain a healthy housing market.

New-homes sales are on pace for the worst year since the government began keeping records a half century ago.

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Seriously, I’m getting really tired of all the comments accusing my articles of being satirical.  Cut it out.  It’s not funny and you cannot defend the indefensible.   I’m pressing on anyway with my plan for fixing America.

Foreclosures

The housing crisis is completely and entirely the fault of the banks.  I reject the notion that borrowers had any culpability whatsoever.  All those rules and regulations made it necessary to have a Ph.D. to understand all those mortgage documents.  There was too much paperwork for any borrower to actually wade through and read.  And don’t give me the excuse that all that paperwork was the result of government regulation.  We needed all that paperwork so that banks wouldn’t take advantage of borrowers.  And even though we had all that paperwork, they still took advantage of borrowers.  Everybody knows that nobody reads contracts, so saying that it was the borrower’s fault for signing something they didn’t understand makes no sense.  The borrowers were all duped into signing all that mortgage paperwork and didn’t understand that mortgage rates would reset and that they couldn’t afford to own the home.  Besides, the housing bubble was so out of control that who could blame a borrower for wanting to cash in?  Everybody else was!

So I say that anybody who can’t pay their mortgage should not have to pay their mortgage.  Banks should be forced to modify any loan that any borrower has fallen behind on.  They should modify it so that the borrower can live in the house for as long as they want as long as they can’t pay the mortgage.  The bank never should have approved the loan in the first place, even though the loan documents weren’t necessarily truthful.  The banks should be able to read people’s mind, and since they can’t, they should pay the price.

For everyone who has paid their mortgage on time, why should you get a break for being responsible?

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So let’s say you’re stuck in a house that the bank says is worth half a million, but the market says it’s worth only a quarter of that. What if it turned out you could walk away from it and rent not just another house, but a bigger house, for less money? What if four million of your friends figured this was a good idea, too? We’ll discuss this and more on today’s edition of Coffee and Markets, a daily podcast from The New Ledger on politics, policy and the marketplace with Francis Cianfrocca, brought to you by BigGovernment.com.

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Senator Chris Dodd’s (D-CT) approach to overhaul financial industry regulations is scheduled to be debated next week in the Senate Banking Committee with a mark-up of the bill starting in early December.  This bill is sold as an effort by the federal government to seize control of financial institutions with the potential to cause a financial market meltdown.  Sources in the Senate tell me that the true effect of this bill will be to lock in the Troubled Assets Relief Program (TARP), give special treatment for the trading partners of financial institutions facing bankruptcy, and grant more power to the Federal Reserve Board in Washington over monetary policy.  This financial regulatory reform effort will create a massive new bureaucracy that will oversee financial institutions that will effectively serve as a Big Brother for Big Business.

From a Senate Banking Committee press release

“It is the job of this Congress to restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them,” Dodd said at the press conference.  “We must create a sound foundation to grow the economy and create jobs.”

The problem is that the big government approach to the financial regulatory reform effort may harm economic growth and grants sweeping new political powers to the Federal Reserve over monetary policy.  The big ticket item for the legislation is the creation of a new federal bureacracy called the “Consumer Financial Protection Agency.”   The discussion draft of the legislation describes the new agency as “an independent watchdog to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, while prohibiting hidden fees, abusive terms, and deceptive practices.”    The fact of the matter is that this new government entity distracts freedom loving Americans from many other disturbing aspects of this bill that will grow government and harm economic prosperity.

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